What is a Creditor? Meaning, Features, and More.

हिंदी में पढ़ें:

In business whenever there is a transaction of products then payment happens at the same time or later, if the payment happens at the same time then it is called only a transaction but if the payment happens later then it is called a credit transaction. When the seller transacts with the product on credit, he is called a creditor. In accounting, a creditor means a person who sells a product on credit.

Whenever there is a creditor there will also be a debtor because both are opposite to each other and do not exist without each other. Both of them start together and end together because they both belong to a transaction and when the transaction ends, they also end. In simple language, the one who sells products on credit is called a creditor and the one who buys products on credit is called a debtor.

What is a Creditor?

A creditor is a person or seller who sells a product on credit and remains a creditor until full payment is received. By selling the product on credit it becomes a creditor to another person, due to which it becomes a liability to the other person. Creditors are shown on the liabilities side of the balance sheet. It is shown on the balance sheet only until the payment for the transaction is completed.

Creditors play an important role in any business as they are the only ones who sell products on credit. Creditors also help in showing the status of the business as it shows how much goodwill or trust the business has in the market. Note: A creditor can be any person like an individual, business, firm, organization, institution, etc. In simple language, anyone who sells products on credit will be called a creditor.

Features of Creditor

Following are the features of the creditor:

1. Liability:

A creditor is a liability of the business because the business has purchased products from it on credit and the creditor remains a liability of the business until the transaction is paid in full, but once the creditor is paid in full it is no longer a liability to the business. In accounting, the creditor is treated as a short-term liability or current liability.

2. Shown on the Balance Sheet:

The creditor is shown on the liability side of the balance sheet because it is the liability of the business. On the liability side, it is shown under current liability or short-term liability. It is shown on the balance sheet only until the creditor is paid in full. Once the creditor has been paid in full it is removed from the balance sheet.

3. Credit Balance:

The creditor’s account balance is always credit because the rule of personal account applies under which who receives is debited and who gives is credited. If the creditor’s account balance is debited he becomes a debtor and then the process is reversed. Note: If the creditor’s balance is credit, then the debtor’s balance will be debit and if the creditor’s balance is debit, then the debtor’s balance will be credit.

4. Rights:

The creditor has the right to receive payment for the products sold by him on credit and also has the right to take legal action against the debtor if he does not make payment. The period of payment depends on both the parties and the transaction but being a current liability, the payment has to be made within a year, but this may not happen.

5. Opposite of Debtor:

The creditor is always opposite to the debtor because a single person cannot complete the transaction. For example, one who buys products on credit is called a debtor and one who sells products on credit is called a creditor, in this situation a person cannot be both in one transaction, hence both are opposite to each other.

Read Also:

• What is a Debtor? Meaning, Features, and More.
• What is Liability? Meaning, Features, and More.
• What are Assets? Meaning, Features, and More.

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