Primarily, we need to know what exactly accounting is. Accounting is a language, a system that communicates information, although it is just as important in the operation of government agencies, clubs, colleges and other kinds of organization. You probably have some idea already what accounting means. It is frequently used in everyday conversation to mean “answering for responsibility”.
What is an account?
An Account is the distinct record of an asset, liability, the revenue, a capital or an expense in a concise practice. For example, the individual record of cash which is an asset is known as cash account, the individual record of the purchase is purchases is Purchase account.
Now, talking about accounts payables.
Creditors rise when goods are purchased from the sellers on the basis of credit that is the cash isn’t pay at the time of transaction. These sellers or suppliers are called Creditors. They buy the goods but the cash or money is yet to be paid to them in the nearby future rather than at the moment of transaction. When accounts of such suppliers are made they are recognized as “Accounts payables”.
- The money receivable to the business or the person is called ‘Creditors’.
- The money to be paid by the business or the person is called ‘Debtor’.
When a cheque is issued to a creditor, it is recorded in the cash book whereas it is recorded in the Bank’s credit column on the same date but the bank will record it on the date when it is paid. In most of the cases a cheque cannot be presented for payment by the creditor on the date on which it is drawn. So long the cheque is not presented to the bank, the cash book balance and the pass book balance will differ, because the cash book was being credited but the pass book has not been debited.
Suppose on 15.1.2005, we issue a cheque for Rs.10, 000 to a creditor Mr.X who presents it to the bank on 9.1.2005 and the bank pays him the money. Here the cash book balance and pass the book balance will show a difference of Rs.10, 000 during the 15th January to 19th January, 2005. For this, the cash book balance will be Rs.10, 000 less and the pass book balance Rs.10, 000 more.
Start free ReadyRatios
reporting tool now!
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedIFRS Terms
- Statement of Comprehensive Income
- Cost of Sales
- Shareholders Equity
- Finance Costs
- Earnings per Share (EPS)
- Deferred Tax Assets (Deferred Tax Liabilities)
- Capital Expenditure (CAPEX)
- Intercompany Eliminations
- Share Premium
- Distribution Cost
Have 10 minutes to relax?Play our unique
Play The Game