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Distinguish between debtors and creditors; profit and gain?
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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.

4 Months Ago
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3 Months Ago