Sundry Creditors: Understanding the Meaning and Examples
Many financial transactions are documented in a company's financial statements. Some are done only to monitor the funds, while others are significant for understanding the company's economic status. Sundry creditors' records are one such important transaction that aids in thoroughly analysing the company's status. To learn more about sundry creditors, how they are listed in various financial accounts, and their importance to a company, let's read the entire article.
Table of Content
What are Sundry Creditors?
Companies or individuals providing various services or goods on credit terms are known as sundry creditors. They are regarded as the people or businesses that a certain business owes money to because the credit facility was used in exchange for specific goods or services. Sundry creditors are liabilities within a corporation since they owe another company money due to the transaction. The entity offering the goods or services and the one obtaining the credit facility against the goods or services provided agree on a credit payment schedule.
Sundry Creditors: Type of Account
The liability account of a business includes accounts payable, commonly referred to as sundry creditors. The main cause for this is that companies provide goods or services to other businesses or persons in advance, with money being received later. Buyers generally reimburse sellers later and are held accountable for various creditors. Consequently, they are listed under the balance sheet's "liabilities" heading.
Sundry Creditors Ledger Account Format
Liabilities, such as creditors, keep the accounts' balances on credit positive. Credit purchases made throughout a fiscal year are always documented as credits in the financial statements, which helps to increase the total owed by creditors. Payments to creditors or returns of purchases are recorded as debits since they reduce the total owed to creditors. The following is the format for ledger accounts relating to various creditors:
Dr. | Cr. | ||||
Date | Particulars | Amount (Rs) | Date | Particulars | Amount (Rs) |
| To bank A/C | *** |
| By Balance b/d (opening sundry creditors balance) | *** |
| To Purchase Return A/C | *** |
| By Credit Purchases A/C | *** |
| To Bills Payable A/C | *** |
|
| *** |
| To Balance C/D (closing balance of sundry creditors) | *** |
|
| *** |
|
| ***** |
|
| ***** |
How are Sundry Creditors Recorded
Sundry creditors may be listed as a liability in a company. It can be found on the company's credit side of the balance sheet. However, some organisations choose to track payments made against these transactions using a different type of account called an accounts payable account or multiple creditors account.
Examples of Sundry Creditors
To properly comprehend the transaction process of several creditors, let's look at an example. Let's assume a situation in which XYZ Ltd. spent a total of Rs. 12,000 on products purchased from Jain Traders. XYZ Ltd. must pay the cost for this January 31, 2023, transaction by April 2, 2023. For XYZ Ltd., keeping a record of on-time payments is essential since it helps the company maintain its good credit rating. XYZ Ltd. will properly document this transaction in its financial records under the "Sundry Creditors" ledger, categorising it as a company liability in order to account for this obligation.
Sundry Creditors Journal Entry
Credit transactions, classified as expenditures, give rise to trade payables or other creditors. However, the payment becomes a liability for the organisation when it is due. The following is the journal entry used for documenting the various creditors displaying credit purchases of any goods or services:
Date | Particulars | L/F | Debit Amount (Rs) | Credit Amount (Rs) |
| Purchase A/C Dr. To Sundry Creditors A/C (Being goods purchased by sundry creditors on credit) |
| ***** |
***** |
Sundry Creditors in Trial Balance
When creating a company's trial balance, the amount owed to various creditors needs to be noted on the statement's credit side. Like other income or liability accounts, this specific account is a company liability, so the trial balance calculation is finished, and the amount is credited.
Sundry Creditors in Balance Sheet
Sundry creditors are listed on the balance sheet under the "accounts payable" or "sundry creditor" categories in the liabilities section of the financial statement. Since the amount reflects the full amount due by the company to various suppliers or vendors for all the goods or services obtained on credit, the payment recorded on the balance sheet is a business liability.
What are Sundry Debtors
Sundry debtors owe you money for the goods they bought from you, much as sundry creditors, who are companies to whom you owe money. Your company will gain advantages from having a variety of debtors since they will bring in money. As a result, they are displayed under Assets on the left side of the balance sheet. Accounts Receivable and Sundry Debtors are interchangeable because the latter refers to the funds the company will ultimately receive.
Difference between Sundry Creditors and Sundry Debtors
The distinction between the creditors and sundry debtors must be clearly understood in order to obtain a more realistic understanding of miscellaneous creditors and their impact on the company. Some important differences between them are explained as follows:
Companies that owe money for services or goods they have received are known as sundry creditors. They are third parties to which the business owes money to. Conversely, companies or individuals that owe money to a business for goods or services supplied are referred to as miscellaneous debtors. They are outside parties that owe the business money.
The company's balance sheet shows a liability for sundry creditors, which denotes a future payment requirement. In contrast, miscellaneous debtors, which stand for money owed to third parties, are an asset on the company's balance sheet.
Sundry debtors are included under the "assets" heading on a balance sheet, while many creditors are shown under the "liabilities" heading.
Sundry creditors serve as an indicator of a business's indebtedness and the necessity of handling its payables. Conversely, sundry debtors demonstrate the ability of a company to manage its receivables and collect outstanding amounts.
When goods or services are bought on credit for several creditors, accounting treatment requires entering a credit entry in the books of accounts. However, for debtors, when goods or services are sold on credit, a debit entry is entered in the books of accounts.
Conclusion
Services and goods are generally available to businesses and individuals on a credit basis, with transactions recorded on the account of various creditors. To keep cash flowing consistently in the business system and prevent default or penalties for late payments or unpaid credit, businesses must deal with their many creditors appropriately.
FAQ
Q1. Which are sundry creditors?
Sundry creditors are companies or individuals who provide various goods or services on credit terms. Because they have debts from interactions with other businesses, they act as liabilities within a company.
Q2. Are sundry creditors a liability or expense?
Since the outstanding balance for a particular transaction is expected to be paid by both parties involved within a specific period, various creditors are liabilities in the firm.
Q3. Are sundry creditors a current asset?
No. Various creditors are not current assets; they are an expense.
Q4. Why are sundry creditors regarded as a liability to business?
Sundry creditors mean that you are taking out interest-free credit from your creditors, so you owe them money. The cost of carrying the products is also on you. Therefore, until you pay for the items or services given to you, it is a liability to your company.
Q5. Why are sundry debtors an asset to business?
Customers who have taken advantage of free credit from vendors and owe your company money are known as sundry debtors. Therefore, it remains an asset, money, or product in your business until you get paid for the items or services you have sold.
Q6. What are sundry creditors on the balance sheet?
Sundry creditors are presented as the company's responsibilities on a balance statement. The reason for this is that the statistics depict the total amount owed by a business to all of its vendors and suppliers for all of the goods and services that were bought on credit.
Q7. How to adjust sundry creditors' amount to profit?
A change in the amount owed to suppliers that affects the company's financial statements must be recognised to adjust various creditors (accounts payable) to profit. Reducing the amount owing to different creditors will improve your earnings. Minimise liabilities by settling past-due invoices, arranging early payment reductions with suppliers, or contesting and resolving disputes. You can expand the number of creditors by postponing payments or expenses if you plan to limit earnings.
Q8. How Do Sundry Creditors Differ from Sundry Debtors?
Sundry creditors are parties to whom the business owes money, while sundry debtors are those who owe money to the business. The former represents liabilities, and the latter represents assets.
Q9. Why Are Sundry Creditors Important for a Business?
Sundry creditors impact a business's working capital and cash flow management. Efficient handling ensures smooth supplier relationships and avoids liquidity issues.
Q10. How Are Sundry Creditors Recorded in Financial Statements?
Sundry creditors are listed as liabilities in the balance sheet. They appear under "Accounts Payable" or "Trade Payables," reflecting the company's outstanding obligations.
Q11. What Are the Common Examples of Sundry Creditors?
Examples include suppliers of raw materials, utilities providers, and service vendors. Any party providing credit terms for goods or services can be a sundry creditor.
Q12. How Can a Business Manage Sundry Creditors Effectively?
Maintaining accurate records, negotiating favorable payment terms, and ensuring timely payments can help businesses manage sundry creditors efficiently. This also strengthens supplier relationships.
Q13. Are Sundry Creditors the Same as Trade Payables?
Yes, sundry creditors are often synonymous with trade payables. Both terms refer to outstanding amounts a business owes to its suppliers or vendors.
Q14. What Happens If Sundry Creditors Are Not Paid on Time?
Delayed payments can lead to penalties, strained supplier relationships, and damage to the company’s creditworthiness. It may also disrupt the supply chain.
Q15. How Are Sundry Creditors Verified During an Audit?
Auditors review invoices, contracts, and payment records to confirm the authenticity of sundry creditors. They also check if liabilities are recorded accurately and completely.
Q16. What is the Impact of Sundry Creditors on Working Capital?
Sundry creditors temporarily enhance working capital by allowing businesses to defer payments. However, excessive credit reliance can strain liquidity and affect financial stability.
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