Learn On Your Own When Creditors Account Shows A Debit Balance:

Creditors are those entities from whom goods are purchased on credit and the payment for which is to be made in future. They represent liabilities to the extent of the total purchases made for the purchasing concern.

If a creditor account shows a debit balance, it might signify the following:

  1. Either some mistake may have been committed in recording of transactions due to human errors due to which the creditor's account may show debit balance. But the mistake committed may be rectified by passing rectification entries.
  2. Or, also as business is a continuous process, long term business relationship between two or more parties is a common feature. On account of this, sometimes excess payment may be made to a creditor to be adjusted with future transactions. Though payment is made on good faith but recording of payment needs to be done and will be recorded in the books of account. Suppose account payable shows a credit balance of 45,000.00 and payment made against the balance due is 50,000.00. The payment so made will neutralize the liability of the purchasing company towards the creditor and consequently in the books of the purchasing company, the creditor's account will now reflect debit balance. The position of the creditors thus gets transferred to debtor and will be shown in the list of sundry debtors until the next transaction is made with the concerned party and payment to be made henceforth is adjusted with the pre paid amount of 5,000.00
  3. Sometimes provision may also be created in anticipation of discount receivable from creditors against amount payable. This creation of provision may make creditors account show debit balance. But it is contra liability account.