Creditors Meaning and the Creditors Ledger
What is a creditor?
A creditor or lender is a party that has a claim on the products or services rendered to a second party. The creditor is considered to be a person or institution to whom money is owed. The first party (the creditor), in general, has provided some property or service or loaned to the second party (the customer who borrows money or requests credit) under the assumption that the second party / customer will return an equivalent property and service or payment for that service.
What is a creditors ledger?
It is a general ledger account in which individual creditors’ accounts are recorded. It is additional to the nominal ledger and forms part of the internal creditors control account system. In each individual creditor’s account there is a record of the purchases made (credit), payments made (debit), discounts received (debit), and returns outwards (debit).
The total sum of all the creditors’ ledger accounts is periodically extracted and compared to the total on the creditors’ ledger control account as part of the internal control system. The total of the individual creditors’ ledger accounts should always equal the creditors’ ledger control accounts. Any differences that do occur must be investigated.
Frequently asked questions
What is the difference between a creditor and debtor
A creditor is someone you owe money to whereas a debtor is someone that owes you money.
What types of creditors do you get
Creditor is an Individual - Personal loans or purchasing from a Sole Trader
Creditor is a financial institution - they loan money or extended mortgage or vehicle and asset financing, credit cards
Creditor provides goods and services - Service industry businesses or Businesses selling retail goods
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