Creditors Basics

Introduction to Creditors

Creditors are amounts which are owed by you to your suppliers, they are sometimes referred to as Accounts Payable or Trade Creditors.

If your supplier allows you credit and invoices you for a product or service and you make payment at a later date 30 days 60 days etc, then while you owe the supplier the money they are classified as a creditor of your business.

Creditors are recorded in the balance sheet of the business under the heading Current Liabilities, that means they are payable within a year.

How do you record Creditors?

Creditors are normally first recorded in the Purchase Ledger which contains a personal account for each supplier. In this way a listing of the purchase ledger accounts will give you a listing of outstanding debts or Creditors.

If for example, purchases are made on credit from Supplier A for £200 and Supplier B for £400 the first entry would be to the purchases day book to record the purchases.

Purchases Day Book – to record the purchases
Purchases Day Book Page 1
Date Supplier Invoice Page Amount
8th May 2013 Supplier A Invoice 123 Page 4 200
9th May 2013 Supplier B Invoice 456 Page 7 400
Total Purchases 600

The next entry would be to the Purchase Ledger to record the Creditors to the personal accounts of each Supplier.

Purchase Ledger – to record the Creditors
Supplier A Page 4
Date Account Page Debit Credit
8th May 2013 Purchases PDB 1 200
Supplier B Page 7
9th May 2013 Purchases PDB 1 400
Total Creditors 600

Finally the double entry posting would be the total from the purchases day book and the purchase ledger.

Double entry posting to the Creditors control account
Account Debit Credit
Creditors Control Account 600
Purchases 600
Total 600 600

Creditors Basics November 6th, 2016Team

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