{"id":3650,"date":"2024-03-12T14:37:40","date_gmt":"2024-03-12T14:37:40","guid":{"rendered":"https:\/\/expenseplus.co.uk\/blog\/?p=3650"},"modified":"2026-03-18T13:54:48","modified_gmt":"2026-03-18T13:54:48","slug":"what-are-creditors-and-debtors","status":"publish","type":"post","link":"https:\/\/expenseplus.co.uk\/fund-accounting\/what-are-creditors-and-debtors\/","title":{"rendered":"What are debtors and creditors in charity accounting?"},"content":{"rendered":"\n

In this blog, Tim Wyatt, from Wyatt & Co Chartered Accountants<\/a>, explains what debtors and creditors and debtors are in fund accounting. Tim has many years of experience working with churches and charities across the UK. Here he gives examples of common applications of debtors and creditors for churches and charities accounting on an accruals basis.<\/p>\n\n\n\n

Introduction<\/strong><\/h2>\n\n\n\n

When accounting on an accruals basis (rather than a receipts and payments basis<\/a>) you need to consider the transactions incurred <\/em>ina period, rather than when cash changed hands <\/em>during the period. Therefore, some transactions near the start or end of a financial period may need ‘moving’ to an adjacent period or year via an adjustment. Debtors and creditors refer to these adjustments relating to transactions which occur in a different financial period (usually a financial year).<\/p>\n\n\n\n

This blog focuses on current debtors and creditors rather than loans, debt and other types of securities.<\/p>\n\n\n\n

An example of a need for an adjustment is if a charity that has a calendar financial year (i.e. 1st<\/sup> January \u2013 31st<\/sup> December) receives an invoice for services in December. But it doesn\u2019t pay the invoice until the following January, which is in the next financial year. The invoice relates to the first year, but the transaction actually occurred in the following financial year. So, on 31st<\/sup> December, the charity owed<\/em> the money. Therefore, it was classed as Accounts Payable <\/em>(this is explained further below).<\/em><\/p>\n\n\n\n

Sometimes, these adjustments identify you owing a third party either money or services, because you\u2019re paying late, or they\u2019ve paid you early. Sometimes the third party will owe you money or services. This is either because they\u2019ve paid you late, or you\u2019ve paid them early.<\/p>\n\n\n\n

When you owe the third party, this is a creditor<\/strong>.<\/p>\n\n\n\n

When they owe you, it\u2019s a debtor.<\/strong><\/p>\n\n\n\n

The four main types of debtors and creditors<\/strong><\/h2>\n\n\n\n

A helpful way of thinking about debtors and creditors is splitting them as shown in the table below:<\/p>\n\n\n\n

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  • Where money is received in <\/strong>or paid out<\/strong> of your bank account prior <\/strong>to the period it relates to, these are sometimes called ‘deferrals’ (described as ‘early’ in the table below).<\/li>\n\n\n\n
  • Where money is received in <\/strong>or paid out<\/strong> of your bank account after <\/strong>the period it relates to, these are called accruals (described as ‘late’ in the table below).<\/li>\n<\/ul>\n\n\n\n
    <\/th>Income (received)<\/strong><\/th>Expenditure (paid)<\/strong><\/th><\/tr><\/thead>
    Early<\/strong><\/td>Deferred income<\/strong>
    (they\u2019ve paid you early, you owe them a
    service)
    CREDITOR<\/strong>
    e.g. ticket sales for an event next year<\/td>    		Prepayment<\/strong>
    (you\u2019ve paid them early, they owe you a service)
    DEBTOR<\/strong>
    e.g. 36 months IT support paid upfront<\/td><\/tr>
    Late<\/strong><\/td>Accounts Receivable<\/strong>
    (you\u2019ve given them a service, they owe you money)
    DEBTOR<\/strong>

    e.g. invoice owing to you for room hire<\/td>    		Accounts Payable
    <\/strong>(they\u2019ve given you a service, you owe them money)
    CREDITOR<\/strong>
    e.g. invoice unpaid by you for cleaning
    services<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    Thinking about push and pull<\/strong><\/h2>\n\n\n\n

    Another way to think of debtors and creditors is in terms of pull and push. Watch this video to find out more:<\/p>\n\n\n\n

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