Debtor vs Creditor

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 debtorDebtorA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion. read more 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.

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 bondsBondsBonds refer to the debt instruments issued by governments or corporations to acquire investors’ funds for a certain period.read more, and mortgage loans. Creditors are mentioned as a liability in the balance sheetLiability In The Balance SheetCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more of an organization.

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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 periodCredit PeriodCredit period refers to the duration of time that a seller gives the buyer to pay off the amount of the product that he or she purchased from the seller. It consists of three components - credit analysis, credit/sales terms and collection policy.read more 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 debenturesDebenturesDebentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements. In return, investors are compensated with an interest income for being a creditor to the issuer.read more 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

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Key Differences

Debtor vs. Creditor Comparative Table

BasisDebtorsCreditors
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 balanceIn a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance. A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction.read moreIn a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance. A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction.read more 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 sectionCurrent Assets SectionCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more.
 Creditors are shown as liabilities in the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more under the current liabilities section.
What is it in accounts?
 Debtors are an account receivable. Creditors are an account payableAccount PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more.
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.

Conclusion

A particular business transactionBusiness TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more 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.

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