The purpose of most businesses is to sell more and generate profit. A major part of this is the company’s cash flow. Cash flow is the liquid cash available at any point of time during business practices. Conducting business on credit is a business practice done globally.
Whether you are a multi-chain business, a large factory, a family run business or a kirana shop, chances are a part of your business is conducted on credit. Both creditors and debtors thus play an important role in shaping the business. In this article, let’s see who sundry creditors and debtors are and how such transactions are recorded in the balance sheet.
Who are Sundry Creditors?
Some businesses supply products and services to other businesses on credit basis. This means the products or services are supplied in advance, and the payment will be made a little later within the set period of time, say 15 to 90 days.
Such businesses who provide the goods on a credit basis are called ‘Sundry Creditors’ to the receiving company. Since the buyer of the products needs to pay money to the seller, sundry creditors are considered a liability to the company, and they will be listed on the right-hand side of the credit side of the balance sheet. All such parties from whom the goods are bought on credit come under sundry creditors or accounts payable, which is another term used for a sundry creditor.
All sundry transactions come under the heading of accounts payable. There are multiple suppliers with different amounts and periods. To understand and analyse each sundry creditor, it is important to have a separate sundry creditor account for each supplier.
Examples of Sundry Creditors
ABC is a stationary company that purchased Natraj pens and pencils worth INR 1 lakh on a credit basis on a 90 day credit period. It also purchased Faber Castle crayons and paints worth INR 50,000 on a 60 day credit period. Let’s see how ABC company records this transaction under the ‘Sundry Creditors’ section and treats it as a liability.
Current Liabilities INR 1,50,000
Under the Current Liabilities section for Sundry Creditors, the entry will look like
Natraj [90 days] INR 1,00,000
Faber Castle [60 days] INR 50,000
The current liabilities section typically includes the total of the short term liabilities that need to be paid off in a short span. In the separate ledger for the sundry creditors, details about the creditors, the amount due, and the due date are mentioned.
Who are Sundry Debtors?
Akin sundry creditors, where you owe money to other businesses, sundry debtors are those businesses who owe you money for the products they purchased from you. Sundry Debtors are an asset to your business as money will enter the business. They are hence mentioned on the left-hand side of the balance sheet under Assets. Sundry Debtors are also synonyms to Accounts Receivable as this is the money the business will receive in due course of time.
Accounts Payable Explained
- In simple words, accounts payable is the money you owe to someone.
- Accounts payable is the total amount of money that the firm owes to a supplier or enterprise. Since the service has been provided and the money is yet to be received, accounts payable comes on the liability side of the balance sheet.
- Since accounts payable is a dynamic account and keeps on changing every few weeks or months, they come under the Current Liabilities side of the balance sheet.
- Businesses need to track their accounts payable section closely as this account affects the business’s cash flow.
Importance of managing Accounts Payable
Since Accounts Payable gives you a fair representation of the money owed by the business, it is very important to have good accounts payable management practices. It helps you understand when to make the payments and the remaining balance in due course of time. Since this involves a few steps, it can be tedious to do manually.
Hence myBillBook does the job for you in just a few clicks. Once all your entries are entered on the myBillBook accounting software, it generates the different ledgers that need to be made and maintained. myBillBook understands the needs and requirements of small business owners and ensures the Accounts Payable ledger is managed efficiently and there is no delay in payments and cash flows.
Whether you’re a business owner, accountant or you’re just starting off your business practice, understanding Sundry Creditors is very important. It helps you understand the everyday functions of a business and cash flow. Once you’ve got the hang of it you can concentrate on growing the business and conducting more business on credit to increase your inventory.
Lastly, the accounts payable ledger does not need to be handled manually. With the help of cloud accounting softwares and the plenty of features available on myBillBook, your everyday accounting will be taken care of, giving you timely reports and analyses so you can make bigger business decisions.
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