What’s the difference between Debtors and Creditors?

As we know some find accounting daunting, so we thought we would explain some of the basic terms to help you get started.

Debits and Credits

Every transaction that is recorded in the accounting process can be classified as  either a debit or a credit. A debit can be described as a transaction where value is ‘added’ to an account. An example of a debit transaction would be receiving payment, for example, you lodge a payment into your account. A credit transaction can be classified as value being ‘removed‘ from an account. Writing somebody a cheque will remove value from your account.

In accounting, a company that owes you money is described as ‘debtor’ as they have the obligation of paying you the debt. A creditor can be defined as ‘one to whom funds are owed‘, in terms of your business, these would be classified as payments you owe to other parties. Accounting is, in its most basic form, a record of debit and credit transactions carried out over time.