Sundry debtors are individuals or businesses who owe money to a company for goods or services purchased on credit.Discover the ins and outs of Sundry Debtors, those who buy now and pay later. Learn how it affects money matters and get practical tips!
Sundry debtors are individuals or businesses that owe money to a company for credit purchases. This blog explores their meaning, accounting formats, examples, and their role in financial statements, helping you understand their impact on a company’s financial health and cash flow.
What Are Sundry Debtors?
Debtors are individuals or businesses who owe money to a company for goods or services purchased on credit. They are essentially customers who have not yet paid their invoices. The term “sundry” is used because these debtors can be a diverse group, ranging from regular customers to one-time buyers.
Meaning and Examples
- Meaning: Sundry debtors represent a current asset on a company’s balance sheet. This means that they are expected to be collected within one year. The amount owed by sundry debtors is also known as accounts receivable.
- Examples:
- A customer who purchases goods on credit from a store and is given 30 days to pay.
- A company that provides services to another company and sends an invoice that is due in 60 days.
- An individual who borrows money from a bank and has a loan that needs to be repaid over time.
Sundry Debtors Is Which Type of Account?
Debtors is a current asset account. This means that it is an asset that is expected to be converted into cash within one year. Current assets are listed on the balance sheet under the heading “Current Assets.”
How to Record Sundry Debtors?
Recording debtors involves two main scenarios:
-
When a Sale on Credit Occurs:
- Debit the Accounts Receivable account: This increases the amount owed by customers.
- Credit the Sales account: This increases the company’s revenue earned from the sale.
Journal entry:
Accounts Receivable (Debit) | Amount
Sales (Credit)| Amount
-
When a Customer Settles their Invoice:
- Debit the Cash account: This increases the amount of cash received.
- Credit the Accounts Receivable account: This decreases the amount owed by the customer.
Journal entry:
Cash (Debit) | Amount
Accounts Receivable (Credit) | Amount
Sundry Debtors Ledger Account Format
Upon finalising the recording of financial transactions via journal entries, it is essential to transfer the balances into general ledger accounts for the year-end closing values. For sundry debtors’ accounts, the provided format in the general ledger is utilized for recording and reconciling the total amount.
| Date | Description | Debit | Credit | Balance |
| 2023-10-26 | Sale of goods | 100.00 | 100.00 | |
| 2023-11-15 | Payment received | 50.00 | 50.00 | |
| 2023-12-07 | Sale of goods | 200.00 | 250.00 | |
| 2023-12-28 | Payment received | 100.00 | 150.00 |
Sundry Debtors Examples
- Customers who Purchase Goods or Services on Credit: This is the most common type of sundry debtor. When a customer buys something on credit, they are essentially borrowing money from the business and agreeing to pay it back later. The outstanding balance that the customer owes is recorded in the sundry debtor’s ledger account.
- Government Departments or Agencies that Owe Money for Goods or Services Provided: Businesses that provide goods or services to the government may have to wait for payment until the government agency’s budget is approved. The outstanding balance that the government agency owes is recorded in the sundry debtor’s ledger account.
- Employees Who Have Received Advances on their Salaries: Businesses sometimes pay their employees’ salaries in advance. The amount of the advance is recorded in the sundry debtor’s ledger account until the employee repays it.
- Suppliers Who Have Been Overpaid: If a business accidentally pays a supplier too much, the overpayment is recorded in the sundry debtor’s ledger account. The supplier is then responsible for repaying the overpayment to the business.
These are just a few examples of sundry debtors. Any entity that owes money to a business can be considered a sundry debtor. Businesses need to track their debtors carefully to ensure that they are paid on time. If a business has too many outstanding debts, it can put a strain on its cash flow and make it difficult to operate.
Sundry Debtors in Balance Sheet
Debtors play a crucial role in a company’s financial health, and their presence in the balance sheet signifies an important asset. Here’s a breakdown of how Sundry Debtors are presented in the balance sheet:
1. Location:
Assets Section: Sundry Debtors are categorized as current assets in the balance sheet. They represent money owed to the company by customers for goods or services sold on credit.
2. Presentation:
- Subheading: Sundry Debtors are often listed under a subheading within the current assets section, such as “Trade receivables” or “Accounts receivable.”
- Value: The total amount owed by all customers is shown as a single figure under this subheading.
- Details (Optional): Some balance sheets may provide further details about Sundry Debtors, such as:
- Aging Analysis: This shows the breakdown of debts based on their due date (e.g., current, overdue 30 days, overdue 60 days, etc.).
- Allowances for Doubtful Debts: This is an estimate of the amount of Sundry Debtors that may not be collected and needs to be written off.
3. Importance:
- Liquidity: Sundry Debtors represent potential cash inflow, contributing to the company’s liquidity.
- Creditworthiness: A high Sundry Debtor balance compared to revenue may indicate difficulties in collecting payments or offering generous credit terms.
- Financial Analysis: Investors and creditors analyze Sundry Debtors to assess the company’s credit management and collection efficiency.
Sundry Debtors in Trial Balance
In a trial balance, Debtors appear as a single line item on the debit side.
- Nature of Sundry Debtors: Debtors represent money owed to the company by customers for goods or services sold on credit. This is considered an asset for the company and therefore, recorded on the debit side of the trial balance.
- Double-Entry Accounting: In double-entry accounting, every transaction has a debit and a credit to ensure the equation “Assets = Liabilities + Equity” is balanced. When goods or services are sold on credit, the following journal entry is made:
- Debit: Sundry Debtors (increases asset due to money owed)
- Credit: Sales (increases revenue due to goods/services sold)
Therefore, the debit to Sundry Debtors gets reflected in the trial balance.
- Net Balance: Since Debtors represents an asset, it will always have a debit balance in the trial balance. This balance signifies the total amount of money that customers owe the company.
Sundry Debtors Journal Entry
Journal entries for Debtors involve various scenarios related to credit transactions in a business. Here are some common examples:
-
Sale of Goods on Credit:
- Debit: Sundry Debtors (customer name) – Increases asset because customer owes money.
- Credit: Sales – Increases revenue for goods/services sold.
-
Customer Payment Received:
- Debit: Cash/Bank (account receiving payment) – Increases asset representing received cash.
- Credit: Debtors (customer name) – Decreases assets as debt is settled.
-
Discount Allowed on Debts:
- Debit: Sales Returns and Allowances – Increases expense for granted discount.
- Credit: Sundry Debtors (customer name) – Decreases assets reflecting reduced debt.
-
Writing Off Bad Debts:
- Debit: Provision for Bad Debts – Decreases assets as bad debt provision is used.
- Credit: Debtors (customer name) – Decreases asset as uncollectible debt is written off.
-
Provision for Doubtful Debts:
- Debit: Bad Debts Expense – Increases expense for estimated doubtful debts.
- Credit: Provision for Bad Debts – Increases assets as provision for potential uncollectible debts is created.
Difference Between Sundry Debtors and Sundry Creditors
| Feature | Sundry Debtors | Sundry Creditors |
| Definition | Individuals or entities who owe money to the business for goods or services purchased on credit. | Individuals or entities to whom the business owes money for goods or services received on credit. |
| Relationship | Customers of the business | Suppliers or vendors of the business |
| Balance Sheet Position | Current Asset | Current Liability |
| Impact on Cash Flow | Positive when collected (increases cash) | Negative when paid (decreases cash) |
| Financial Analysis | A high balance may indicate collection issues or lax credit policies. | A high balance may indicate strong supplier relationships but also potential cash flow concerns. |
| Management Goal | Collect outstanding amounts efficiently. | Pay outstanding amounts on time to maintain good relationships and avoid late fees. |
Conclusion
Sundry debtors and sundry creditors are two sides of the same coin in business transactions. They represent the flow of money within a company’s financial ecosystem, with debtors owing money for past purchases and creditors being owed money for past sales. While they impact the balance sheet in opposite ways (one as an asset, the other as a liability), both play crucial roles in maintaining financial health and ensuring smooth business operations.
FAQs
Which are sundry debtors?
Sundry debtors are individuals or entities who owe money to your business for goods or services purchased on credit. Think of them as your customers who haven't settled their payments yet. They represent potential future cash inflow when their outstanding debts are collected.
Are sundry debtors a liability or expense?
Sundry debtors are neither a liability nor an expense. They are classified as current assets on your balance sheet. This means they represent money that your business expects to receive within the next year, contributing to your financial strength.
What are sundry debtors on the balance sheet?
Sundry debtors appear under the current assets section of your balance sheet, typically listed as Trade receivables or Accounts receivable. The total amount owed by all your customers is displayed as a single figure under this heading. Some balance sheets may provide further details like:
- Ageing analysis: This shows the breakdown of debts based on their due date (e.g., current, overdue 30 days, overdue 60 days, etc.).
- Allowances for doubtful debts: This is an estimate of the number of sundry debtors that may not be collected and needs to be written off.
Is sundry debtors a current asset?
Yes, sundry debtors are considered a current asset. They represent money that is expected to be received within the next year, unlike fixed assets like machinery or buildings which have a longer lifespan.
How to adjust sundry debtors' amount to profit?
Sundry debtors themselves do not directly impact your profit. However, they play a crucial role in determining your cash flow and liquidity. Efficiently collecting outstanding debts from sundry debtors increases your cash inflow, which can indirectly impact your profit by providing resources for investments and operations. Additionally, writing off bad debts from sundry debtors as an expense can decrease your taxable income, potentially resulting in higher net profit.
