Debtors are individuals or enterprises that owe money to a company, for example, debtors of $400 means that your company has receivable of $400 from relevant parties, these balances usually arise when the company makes credit sales to customers.
Creditors are also individuals or enterprises to whom your company owe money, these balances arise usually when you make credit purchases or receive services on credit from suppliers.
A Hypothetical Example
Suppose a Alfha Company is specialized in auto parts manufacturing, during last month, the company made credit purchases of $200 from Mr. A and made credit sales of $250 to one of its customer, Mr. Z. Considering nature of both parties, Mr. A is company’s creditor because the company owes $200 to Mr. A because of credit purchases and Mr. Z is a debtor/ receivable due to credit sales. Or if your company borrow money from a bank, your company will be debtors in books of bank and creditors in your books of accounts.
Difference between Debtors and Creditors
Basis of Difference
|Meaning||Creditors are parties to whom your company owes money.||Debtors are parties that owe money to your company.|
|Nature of Account||It is account payable.||It is account receivable.|
|Example||The party from whom you make credit purchases.||The party to whom you make credit sales.|
|Discount on goods||Discount is given by creditor to the company when it purchases goods.||Discount is given by your company to debtors.|