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Distinguish between debtors and creditors; profit and gain?
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:
Company X purchases raw materials from its supplier Company Y on credit.
Here for Company Y, Company X will be a debtor because the amount is receivable from them
Similarly, for Company X, Company Y will be his creditor because the amount is payable to them.
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 $90,000 and expenses incurred are $60,000. Here the profit calculated will be $30,000 because revenue exceeds expenses.
Profit = Total Income-Total Expenses
= 90,000 – 60,000
= $30,000
Company A owned land worth $15,00,000 and after 10 years he sold it at a current market value of $18,00,000. So the gain he earned is $3,00,000. This gain of $3,00,000 will be termed as a capital gain since land is a capital asset.
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