Debtors and Creditors Points of Distinction Debtors Creditors Meaning A debtor is a person or entity that owes money to the other party (the other party is also known as the creditor). A creditor is a person or entity to whom money is owed or who lends money. Nature The debtors will have a debit balRead more
Debtors and Creditors
Points of Distinction
Debtors
Creditors
Meaning
A debtor is a person or entity that owes money to the other party (the other party is also known as the creditor).
A creditor is a person or entity to whom money is owed or who lends money.
Nature
The debtors will have a debit balance.
The creditors will have a credit balance.
Receipt of payment
The payment or amount owed is received from the debtor.
The payment of the amount owed is made to the creditors.
Nature of account
Debtors are account receivables.
Creditors are accounts payable.
Status
They are shown under assets in the balance sheet under the head current assets. They are shown as an asset because the amount is receivable from them.
They are shown under liabilities in the balance sheet under the head current liabilities. They are shown as a liability because the amount is payable to them.
Credit / Loan period
Debtors are the one who takes a loan or purchase goods on credit and has to pay the money in the agreed time period, with or without interest.
Creditors are the ones who provide loans or extend the duration of the credit period.
Discounts
They are the ones who receive discounts.
They can offer discounts to debtors.
Provision for doubtful debts
Provision for doubtful debts is created for debtors.
No such provision is created for creditors.
Example:
Mr. A purchases raw materials from its supplier Mr. D on credit.
Here for Mr. D, Mr. A will be a debtor because the amount is receivable from him.
Similarly, for Mr. A, Mr. D will be his creditor because the amount is payable to him.
Profit and Gain
Points of Distinction
Profit
Gain
Meaning
The excess of revenue of a period over its expenses is termed as profit.
Profit = Total Income-Total Expenses
Gain means profit that arises from incidental events and transactions, such as capital gain.
Generation
It is generated within the operations of a business.
It is generated outside the business operation.
Nature of account
Profit calculated will appear in the Profit and Loss A/c.
The gain will appear in the income statement.
Types
Gross profit
Net profit
Operating profit
Capital gain
Long term capital gain
Short term capital gain
Example: A company’s sales for the period are $60,000 and expenses incurred are $40,000. Here the profit calculated will be $20,000 because revenue exceeds expenses.
Profit = Total Income-Total Expenses
= 60,000 – 40,000
= $20,000
Mr. X owned land worth $10,00,000 and after 10 years he sold it at a current market value of $14,00,000. So the gain he earned is $4,00,000. This gain of $4,00,000 will be termed as a capital gain since land is a capital asset.
Debtors and Creditors Points of Distinction Debtors Creditors Meaning A debtor is a person or entity that owes money to the other party (the other party is also known as the creditor). A creditor is a person or entity to whom money is owed or who lends money. Nature The debtors will have a debit balRead more
Debtors and Creditors
Example:
Mr. A purchases raw materials from its supplier Mr. D on credit.
Here for Mr. D, Mr. A will be a debtor because the amount is receivable from him.
Similarly, for Mr. A, Mr. D will be his creditor because the amount is payable to him.
Profit and Gain
Profit = Total Income-Total Expenses
Net profit
Operating profit
Capital gain
Long term capital gain
Short term capital gain
Example: A company’s sales for the period are $60,000 and expenses incurred are $40,000. Here the profit calculated will be $20,000 because revenue exceeds expenses.
Profit = Total Income-Total Expenses
= 60,000 – 40,000
= $20,000
Mr. X owned land worth $10,00,000 and after 10 years he sold it at a current market value of $14,00,000. So the gain he earned is $4,00,000. This gain of $4,00,000 will be termed as a capital gain since land is a capital asset.
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