A debtor is someone who obtains payments from creditors to satisfy their personal and business needs. A debtor is someone, such as a person or company, who seeks financial assistance from creditors in the form of loans, which they must repay with interest.
A debtor is both a borrower and an issuer, with the ability to take funds from loan providers anytime they wish. Debtor and creditor are responsible for managing the financial activity of the entire firm through strategies.
Debtors play a significant role in determining the accounts payable (A/P) area of the accounting system. In specific settings, a debtor is considered an issuer or a borrower. Debtors’ duties are well defined in this setting, allowing businesses to know their actions. Accountants use accounting software to monitor debtors from the debtor’s account and all assets that the borrowers have taken from suppliers.
In simple terms, a debtor is a client of a bank, supplier, or even a vendor who needs his or her service in the form of products or money to keep the business going. A firm cannot function without debtors and creditors. If such an entity never becomes a creditor or a debtor, it will never achieve great success.
Debtors are not counted as sources of income. Debtors’ money owed to creditors is recorded as an asset, such as a note or account receivable (A/R), instead of income. The creditor’s interest or fees, on the other hand, are reported as a creditor’s income and as a debtor’s expense.