The account of various debtors collects the accounting items of individuals or entities that owe money for reasons unrelated to the company's usual business. In accounting, the balance sheet is used as if it were a photograph, a reliable and real reflection of the economic situation of a company.
This report details the assets, liabilities and assets of a company at a specific time. Within this balance sheet there are different accounts and one of these accounts is that of different debtors, which is part of the current assets of a company.
This current asset is the assets, economic assets and receivables of the company that are pending to be used in less than one year among the various debtors. An example of this is loans to employees that mature in months.
The balance is the starting point to analyze the financial strength of a company. Unlike other reports -such as the income statement, which details the earnings and expenses of a company during a period-, the balance sheet lists all the assets and liabilities of a company at the current time, and does so through your accounts.
Definition
Diverse debtors is a collective account within the balance sheet that groups the total of credits in charge of several people who do not have the classification of clients.
Examples of these accounts of different debtors can be cash loans to employees or third parties, sale of fixed assets already depreciated, or another item that is not merchandise, among others.
The importance of this accounting account focuses on that, although they are small loans to various individuals or companies, they are loans that mature and can be claimed within the accounting year.
Active or passive?
As mentioned in the previous point, different debtors is an accounting account that comprises different individuals or companies that, without having the classification of clients, have an economic debt with the company.
What is the nature of this account of different debtors: is it part of the asset or liability? Define both concepts to have them clearer.
Assets are elements that the company owns and uses to conduct business. Instead, the liability is what the company owes to others. The capital of the shareholders is essentially the difference, comparable to the net worth of a company.
The main difference between asset and liability accounts is that assets provide a future economic benefit, while liabilities present a future obligation. Therefore, an indicator of a successful business is one that has a high ratio of assets to liabilities.
The debts that companies or individuals have with the company that do not come from the usual marketing of the same, suppose a future economic benefit; that is, they are part of the company's assets.
The assets are the resources available to the company to carry out its operations, which represents all the assets and rights that are owned by the business.
The diverse debtors assume debts to be charged by the company and, therefore, payment rights that result in resources of the same; that is, assets.
The difference between assets and liabilities is known as equity, net assets, net worth or capital of the company, and according to the accounting equation the net worth must be equal to the asset minus the liability.
Difference between debtor, creditor and client
Although these terms are apparently simple, they can often be confused. Above all, the term debtor and creditor may not be as clear in its distinction, especially for small businesses.
What is a debtor?
A debtor is a party that owes money to another. As simple as that. It can be from an individual - that is, an individual - to a small company, or even a government or official body. It differs from the client in that its debt does not come from the usual trade of the company.
Normally the debtor has the obligation to return the money owed in a defined period, often with additional interest payments as an incentive to lend money.
In a small company you can have debtors and also be, at the same time, a debtor in front of others.
What is a creditor?
The creditor represents the opposite side of this transaction: it is the party that has lent money, a service or a good to an individual or company.
Banks and other financial institutions account for a large part of the creditors that operate within the current economy, although the evolution of the market has created other options, such as loans from individuals to companies.
What is a customer?
A customer is one of the parties to a business transaction that receives or consumes products (goods or services) and has the ability to choose between different products and suppliers.
Then, customers who have purchased products or services that have not yet paid, are debtors of the company that sells, which acts as a creditor in this case. In the same way, the company that sells is in debt to its suppliers if they have provided raw material that has yet to be paid in full.
The relationship between the terms creditor and debtor is important, especially in the case of small businesses, since they affect the assets and liabilities in their balance.
Being a creditor of another company can be considered an asset, which demonstrates the financial strength of the company in question, while excessive debt is considered a risk.
Why is it called balance of situation?
The three elements of the balance sheet - assets, liabilities and equity - are those that provide investors with a more precise and detailed idea of what the company owns and what it owes, as well as what is invested by the shareholders.
It is called the balance sheet because, after all, they are the two sides of the balance (assets on the one hand and liabilities plus the capital of the shareholders on the other) that must be balanced.
The motivation that supports the equivalence of the balance is not technical, it is simple: on the assets side I detail"what I have", and on the liabilities side I detail"to whom it belongs".
References
- Accounting Coach. What is the meaning of sundry and sundry debtors?. accountingcoach.com
- Business dictionary Definition sundry debtors. Businessdictionary.com
- Legal Information Institute. Debtor and creditor. law.cornell.edu
- Investopedia. Breaking Down Balance Sheet. investopedia.com
- Accounts and Legal. Small business advice, debtors and creditor explained. 23.02.20017. accountsandlegal.co.uk