Real Identification of Creditors in Accounting

Creditors are those people who provide goods on credit or loan in money. They have right to get the amount of their goods or loan with interest. So, in accounting,
these creditors are shown in liabilities side. If creditors provides long term loan then all amount of long term loan of creditors will shown as long term liabilities in balance sheet. If creditors have given only goods on credit, then their amount will be shown as current liability in the balance sheet of other party and that other party is called debtor. There is deep relationship between debtor and creditor and we can explain it with follow business transaction.

First case

Mr. X has taken $ 50000 dollar loan from Mr. y on 15% annual interest.

Second case

Mr. Y has taken goods of $ 10000 on credit from Mr. X .

Now we can explain who is debtor and who is creditor in above transaction.

Because Mr. X has taken loan from Mr. Y, so Mr. X is debtor and his liability to pay $ 50000 with 15% annual interest and Mr. Y is creditor because he has claim for getting his money with agreed return. But in second case , we see Mr. Y has taken goods from Mr. X , in this case situation is quite opposite , Mr. Y becomes debtor and Mr. X becomes Creditor for sold goods of $ 10000 .

In End, We can say , if anybody take agreement for proving goods , services , property or money to other person for getting returning on this , then that person will be creditor and other party of contract will become debtor .






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Accounting Education: Real Identification of Creditors in Accounting
Real Identification of Creditors in Accounting
Accounting Education
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