Debtors and creditors are the terms which you will find in every company’s balance sheet and they are quite important because without giving or taking debt it is not possible to run business for long time and they are also vital when it comes to analyzing the financial statements of the company. Given below are some of the differences between debtor and creditor –
- A debtor refers to that person from whom the company owes money or in simple words the person to whom the company sells goods on credit whereas creditor refers to that person who owes money from the firm or in simple words the person from whom the firm buys goods on credit.
- Debtor appears on asset side in the balance sheet whereas creditor appears on liability side of the balance sheet.
- A company has to make bad debt provisions for debtors and if bad debt happens then it is a loss to a company whereas for creditors no such provision is required.
- When the firm has debtors and if it involves provisions that he or she has to pay interest for outstanding amount that it will lead to interest income for the firm whereas when company has creditors than it is the firm which has to pay interest on outstanding amount and therefore it leads to interest expense for the firm.