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Guilherme Mazui

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What is the Difference Between Creditor and Debtor?

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The difference between a creditor and a debtor lies in their roles in a lending arrangement:

  • Creditor: A creditor is a person or financial institution, such as a bank or credit card issuer, that provides credit or lends money to another party. In a credit relationship, the creditor is the lender. Creditors may assess the potential risks of lending to a debtor, so a debtor's creditworthiness may influence which loans, interest rates, and terms a creditor offers them. Creditors may also choose to report a debtor's account activity, such as payment history, credit limits, and balances, to credit reporting agencies.
  • Debtor: A debtor, also known as a borrower, is an individual or company that borrows money from a creditor. Debtors typically have certain financial responsibilities, such as repaying the creditor according to the terms stated in the loan agreement. Debtors can be individuals, small businesses, or other entities.

In summary, creditors are those who lend money and debtors are those who owe money. The relationship between creditors and debtors forms the foundation of financial transactions, and both roles are essential in maintaining the smooth flow of the working capital cycle.

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  • What is the Difference Between Creditor and Debtor?
  • Comparative Table: Creditor vs Debtor

    • Comparative Table: Creditor vs Debtor

    The difference between a creditor and a debtor can be summarized in the following table:

    Basis of Difference Debtor Creditor
    Meaning Any person or company owing money to the company. Any person or company to whom the company owes money.
    Type of Balance Debit balance Credit balance
    Type of Contract The company receives money or other payment from the debtor. The company pays money to the creditor.
    Accounting Category Debtors are known as accounts receivable and come under the category of current assets. Creditors are known as accounts payable and come under the category of current liabilities.
    Financial Obligation Debtors are obligated to pay money to the company. Creditors are obligated to receive money from the company.
    Discounts Debtors receive discounts from the company. Creditors offer discounts to the company.
    Provision for Doubtful Debts Debtors have provision for doubtful debts created on them. Creditors do not have provision for doubtful debts created on them.

    In summary, debtors are entities that owe money to the company, while creditors are entities to which the company owes money. Debtors are shown as assets on the balance sheet, whereas creditors are shown as liabilities.

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    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.