Difference Between Debtor and Creditor
Debtors refer to the party to whom the goods are supplied or sold on credit by another party and the former owes money to the latter, whereas, a creditor is a party that supplies the product or services to another party on credit and has to receive the money from the latter.
Creditors are those who extend the loan or credit to a person, and it may be a person, organization, or firm. In contrast, a debtor is a one who takes the loan and, in return, has to pay back the amount of money within a stipulated period with or without interest.
Who is a Creditor?
The creditor can be defined as the person who gives a loan to any other person, and in return, he expects to get some kind of interest on the loan he is giving. The creditor provides this loan for a particular period, and that period can be small, like a few days or months, or can be a few years also. He extends credit to any other person. Thus by extending this loan or credit, he allows another person to repay this loan after a specific period that may be with or without interest. Generally, creditor gives a loan or sells goods on credit. There are two types of creditors:
- Personal creditors like family, friends, etc.;
- Real creditors like banks and financial institutions.
The creditor generally charges interest on the loan extended by him. Those people who sell goods on credit, also known as creditors, their main motive or interest is to enhance sales. A creditor is a party, person, or organization that has a claim on the services of the second party. A creditor is a person or an institution to which money is owed.
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The first-party or the creditor has extended some property, money, or service to the second party with the assumption that the second party will return the equivalent amount of property, money, or service. The term creditor is usually used for short-term loans, long-term bonds, and mortgage loans. Creditors are mentioned as a liability in the balance sheet of an organization.
Who is a Debtor?
A debtor can be defined as the individual or firm who receives the benefit without paying for it in terms of money or money’s worth immediately but is liable to pay the money back in due course of time. The debtors are shown as an asset in the balance sheet.
A debtor can also be defined as the person who owes money to the other person or institution, for example, any person who takes loan or purchases goods or services on credit. A debtor has to pay back the amount he owes to the person or institution from which he has taken the loan after the credit period is over. So once a debtor pays back the money, he gets released from the debt. When the person who has given a loan (the creditor) gets satisfied with lesser money, then the debtor can get released by paying a lesser sum.
A debtor can be an individual, company, or firm. If this loan is taken from a financial institution, then the taker of this loan is called a borrower. If a loan is in debentures form, then the one who takes the loan is known as the issuer. So we can say that the debtor is one who receives the benefit without giving money or money’s worth. A debtor is an asset until the time he pays the money back.
Debtor vs. Creditor Infographics
- Creditors are those who extend the loan or credit to a person, and it may be a person, organization, or firm. In contrast, a debtor is a one who takes the loan and, in return, has to pay back the amount of money within a stipulated period with or without interest.
- Creditors have the right to offer discounts to the debtors, whereas it is the debtor who receives the discount.
- While creditor is shown as liability in the balance sheet of a firm, a debtor is shown as an asset until he pays off the loan.
- Creditors are the parties to whom the debtors owe an obligation to pay back.
- Debtors are mentioned under the accounts receivable category, whereas creditors come under accounts payable.
- The creditors do not have the provision of doubtful debt created on them, whereas the provision of dubious debt is created on the debtors.
Debtor vs. Creditor Comparative Table
|Meaning of the terms||A person or organization that has the liability to return the money to the person or institution which has extended the loan is called the debtor.||A person or an organization which has extended the loan and whom the debtor is liable to pay back the money;|
|Nature||The debtors have a debit balance to the firm.||The creditors have a credit balance to the firm.|
|Receipt of payment||The payments or the amount owed is received from them.||Payments for the loan are made to them.|
|Status in a balance sheet||Debtors are shown as assets in the balance sheet under the current assets section.||Creditors are shown as liabilities in the balance sheet under the current liabilities section.|
|What is it in accounts?||Debtors are an account receivable.||Creditors are an account payable.|
|Origin||The term debtor originates from the word ‘debate’ of Latin language, which means no one.||The term creditor originates from the word ‘credited’ of Latin language, which means to loan.|
|Discount allowance||Discount is allowed to the debtors by the person who extends credit.||Creditors offer discounts to the debtors to whom they extend the credit.|
A particular business transaction has two parties involved- creditor and debtor. A creditor is the one who lends the money, whereas a debtor is the one who owes the money to the creditor. So there should not be any confusion between these terms. To ensure the smooth flow of the working capital cycle, a company must keep track of the time lag between the receipt of payment from the debtors and the payment of money to the creditors.
This article has been a guide to Debtor vs. Creditor. Here we discuss the top differences between debtor and creditor along with infographics and comparison table. You may also have a look at the following articles –