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Debtors Account

A trade debtor is a person or firm to whom you sold your goods or services, and who will make payment for the goods or services at a future date, which is mutually agreed. Usually, the period of credit is a month and during this period the purchasers of your goods are known as debtors as they have yet to pay for the goods or services. Thus, a debtor is a firm or person who owes money.

An account is opened for each debtor to record the transactions by means of debit or credit entries. Every sale of goods on credit to the debtor is debited to the account, and whenever the debtor makes a payment the account is credited. The debtors’ accounts are very useful to find out how much your customers owe you for the goods you have sold to them. This is normally done at the end of each period which in most cases is a month.

At the end of each month, there are customers who have not paid for all the goods sold to them. In their accounts the totals on the debit and credit sides do not equal one another. The difference between the two sides is the amount still owing, or overpaid. Overpayment by a debtor rarely happens. On the other hand, some customers owe nothing as they have paid for all their purchases by the end of the month. This is indicated by the totals on the debit and credit sides – they are equal.

Balancing the account is about finding out the difference between the debit and credit sides of an account, and entering the difference on the lesser side so that the debit and credit sides are equal in totals. The accounts are balanced at the end of each month so that they can be closed, and the amount owing can be brought forward when the new account opens on the first day of the following month. The process of balancing the accounts involves the following steps.

  1. Add up the totals on each side so that the difference between the two totals can be determined.
  2. The difference or balance is arrived at by deducting the small total from the big total.
  3. Enter the balance on the side with the smaller total so that the two totals are now equal. The date entered here for the balance is the last day of the month. This balance is known as ‘carried down (c/d) balance.’
  4. Add up the totals for each side on the same row.
  5. Enter the balance on the line below the totals but on the opposite side, and enter the date which is the first day of the next month. Here, the balance is called ‘brought down (b/d) balance.’
  6. Ensure that the balance below the totals is on the opposite side to the balance above the totals.

Each one of the debtors’ accounts is most likely to be a debit balance that is the debit side exceeds the credit side. A firm or person whose account has a debit balance is termed a debtor who owes money.

 

A debtor’s account

Items that appear in a debtor’s account

Samson Delilah & Co. Account

Date Particulars Folio Amount Date Particulars Folio Amount
$ $
Balance b/d XXX Cheques received XXX
Sales XXX Cash received XXX
Returns inwards XXX
Discounts allowed XXX
Balance c/d XXX
XXX XXX

 

 

Last Updated (Friday, 17 September 2010 15:34)