Creditors With Debit Balance!
Yes, it is true. It can happen while accounting. I haven’t seen this concept in MNC accounting.
In India, the most preferred software is Tally Accounting. Accountants are finalizing the books with this type of balance. And also saw, books are getting audited.
Creditors with Debit balance are presented on the Assets side, under the head of Loans & Advances. The problem is because of Module based accounting is not in place. And an accounting of Vendor transactions through Journal Entry is possible.
A normal person, who is looking into Accounts, will never understand whether the particular GL is of a Vendor or of a Customer. Whether the party is a Creditor or a Debtor. Because the Creditors with Debit balance are shown together / clubbed with Debtors on the Asset Side.
Now, How to account for Creditors with Debit Balance?
This may happen due to the payment of Advances against supply or service.
All the entries must route through Purchase Voucher type. In ERP like Oracle, SAP, GPS, etc. it is module-based accounting, unlike Tally.
The entry should be as below…
1.
Other Advances / Advance payment to Suppliers A/c. Dr.
To Vendor Account.
(This is with the amount of Advance)
2.
Vendor Account Dr.
To Bank / Cash Account
(This is for payment)
Now you will get the balances in Other Advances or Advance payment to suppliers as the case may be and not in vendor account. These GL will form part of Assets under the Head Current Assets in the Balance Sheet.
An Accountant must maintain the schedule of these advances tallying with Trial Balance & present to Business Houses. This will give a perfect understanding of finance to the business house.
Now, where is the balance in the Vendor’s account? Therefore, the question of Creditors showing Debit balance will not arise.
After completion of supply/service, the vendor will issue a tax invoice, which has to account through Journal.
Purchase / Expense account Dr.
To Other Advances / Advance payment to Suppliers A/c. Dr.
This also may happen due to non-recovery of TDS of any other recoveries.
There is a possibility that,
- The payment would have happened without making TDS.
- Discounts received under any scheme or returns.
In this situation, the purchaser issue a Debit Note to the Supplier with the below entry.
Vendor Account Dr.
To TDS payable / Discounts / Purchase returns etc.. (as the case may be).
In this case, this type of vendor balances is netted off against the balances of other vendors & shown in liability only as Creditors. Remember, these are not Assets. These vendors are not paying back the money other than the adjustment in future payments.
This is a difference between an MNC level of Accounting & Local level of Accounting. Wherein management gets the best & detailed report & understand quickly.
