What are Sundry Creditors? Meaning and Examples
Within the financial statements of a business, many financial transactions are recorded. Some are done only to keep track of the money, and some are highly crucial to understand the financial position of the company. One such crucial transaction that helps analyse business position effectively is the record of sundry creditors.
Let us dive deeper into the article to understand what sundry debtors are, how it is recorded in different financial statements and why they are important for a business.
What are Sundry Creditors?
Sundry creditors are businesses or individuals who provide different services or goods on credit terms. They are also considered to be such individuals or companies to whom a certain business owes their money since the credit facility was availed against certain services or goods.
Within a company, sundry creditors act as a liability since they owe a certain amount to another business due to a transaction. A credit payment timeline is agreed upon between two parties - the one that offers the goods or services and the company that is availing credit facility against goods or services supplied.
Sundry Creditors is Which Type of Account?
Sundry creditors, also known as accounts payable, fall under the liability account of a business. This is mainly because businesses supply services or goods in advance to other companies or individuals, and the payment is received later. The buyers tend to pay money to the seller later, and sundry creditors become the liability of the business. Thus, they are recorded under the 'liabilities' head of the balance sheet.
How to Record Sundry Creditors?
You can record sundry creditors in your business as a liability. It appears on the credit side of the balance sheet of the company. However, certain companies opt to use a separate category of account called sundry creditors account or accounts payable account to track any payments made against such transactions.
Sundry Creditors Ledger Account Format
Creditors, classified as liabilities, maintain a positive credit balance within the accounts. Whenever credit purchases are conducted throughout a fiscal year, they are recorded as credits in creditors' accounts, thus contributing to an augmentation of creditors' balance.
Conversely, any transactions that diminish the creditors' balance, such as payments to creditors or purchase returns, are recorded as debits.
The format for ledger accounts related to sundry creditors is as follows -
Sundry Creditors A/C
| 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) | *** | *** | |||
| ***** | ***** | ||||
Sundry Creditors Examples
Let us consider an example to understand the transaction process of sundry creditors accurately.
Let's contemplate a scenario where PBC Ltd. has made a purchase of goods from Jain Traders, incurring a total cost of Rs.12,000. This transaction, which took place on January 31 2023, requires PBC Ltd. to settle the bill by April 2, 2023. Maintaining a punctual payment record is crucial for PBC Ltd., as it plays a significant role in preserving its favourable credit rating.
To account for this obligation, PBC Ltd. will appropriately log this transaction in their financial records under the "Sundry Creditors" ledger, categorising it as a liability of the business.
Sundry Creditors in Balance Sheet
Within the balance sheet, sundry creditors are reported in the liability section of the financial statement, specifically under the category' sundry creditor' or 'accounts payable'. The consideration in the balance sheet is a business liability since the amount represents the total sum owed by the business to different vendors or suppliers for all the services or goods received on credit.
Sundry Creditors in Trial Balance
While preparing the trial balance of a business, the amount related to sundry creditors must be recorded on the credit side of the statement. As this account is a business liability, like other income or liabilities accounts, the amount is credited while proceeding with the steps in the trial balance.
Sundry Creditors Journal Entry
Trade payables or sundry creditors emerge from credit transactions, which are categorised as expenditures. Nevertheless, when the payment becomes due, it transforms into a liability for the entity. The journal entry that is used to record the sundry creditors showing credit purchase of any services or goods is given below -
| 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) | ***** |
***** |
Difference Between Sundry Creditors and Sundry Debtors
To get a more accurate picture of what sundry creditors are and how they affect the business, it is important to have a clear understanding of the difference between sundry debtors' and creditors' accounts. Some key differences are discussed below.
- Sundry creditors are entities or individuals to whom a company owes money for goods or services received. They are external parties who are owed by the company. On the other hand, sundry debtors denote entities or individuals who owe money to a company for goods or services provided. They are external parties indebted to the company.
- Sundry creditors represent a liability on the company's balance sheet, indicating an obligation to pay in future. Whereas sundry debtors represent an asset on the company's balance sheet, signifying money receivable from others.
- In a balance sheet, you can find the recording of sundry creditors done under the 'liabilities' head, but sundry debtors are recorded in the 'assets' heading.
- To think about the function, sundry creditors reflect a company's outstanding obligations and the need to manage its payables efficiently. Sundry debtors, on the other hand, highlight a company's ability to collect outstanding dues and manage its receivables effectively.
- Accounting treatment involves creating a credit entry in the books of accounts when goods or services are purchased on credit for sundry creditors. But for sundry debtors, it involves making a debit entry in the books of accounts when goods or services are sold on credit.
Conclusion
Overall, companies and individuals are eligible for services and goods on a credit basis for which transactions appear on the sundry creditors account. Businesses need to effectively manage sundry creditors to maintain a smooth flow of cash in the business system and avoid default or penalties due to late payment or credit dues in the company.
Frequently Asked Questions
Which are sundry creditors?
Businesses or people who offer various services or items on credit terms are referred to as sundry creditors. They behave as liabilities inside a firm since they owe money to other companies as a result of transactions.
Are sundry creditors a liability or expense?
Sundry creditors are considered liabilities in the business since the outstanding amount for a specific transaction is supposed to be paid within an agreed timeline by both parties associated with the transaction.
What are sundry creditors on the balance sheet?
On a balance sheet, sundry creditors are liabilities of the business. This is because the figure indicates the entire amount that a company owes to all of its suppliers and vendors for all of the goods and services that were obtained on credit.
Is sundry creditors a current asset?
No. Sundry creditors are a liability and not a current asset.
How to adjust sundry creditors' amount to profit?
Adjusting various creditors (accounts payable) to profit entails recognising any changes in the amount due to suppliers that have an impact on the company's financial statements. You can boost profit by reducing the amount owed to various creditors.
To decrease liabilities, negotiate early payment reductions with suppliers, settle overdue invoices, or contest and resolve disputes. If you intend to limit earnings, you can increase the number of creditors by delaying payments or incurring more costs.
Quick Summary
Sundry creditors are vital for analyzing a business's financial position, as they represent entities owed money for goods or services received. They fall under liabilities in the balance sheet, requiring credit entries in accounting. Understanding the distinction between sundry debtors and creditors is crucial for comprehending a business's financial health and obligations.
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