Question

If a business is purchases on credit from the supplier, How would the supplier be referred to for the business?

Answer 1

Creditor (Accounts Payable)

Explanation:

If as a business you purchase goods on credit from any supplier (accounts payable) then the supplier would supply the goods on credit  and business would incur a liability to the supplier for that amount, however no cash will exchange hands at that this point.

For example, the business purchase goods on credit for the amount of 5,000, then the journal entries will be as follows

                                      Debit                          Credit

Inventory A/c ..........Dr 4,000  

    To Accounts payable ......................Cr       4,000

(Goods purchased on credit form XYZ ltd)

Answer 2

If a business is purchases on credit from the supplier, the supplier would be referred as the CREDITOR to the business.

Explanation:

• A person or an enterprise to whom an enterprise owes an amount against credit purchases of goods and/or services taken or both is known as a Creditor.
• It is a liability to the enterprise. Therefore, Creditor always get credited in books of accounts.
• For example, Company A purchases goods from Company B on credit for the worth of Rs.2000, the entry will be:

                          Purchases A/c                           Dr. 2000

                                            To Company B's A/c                         2000

• Hence, If a business is purchases on credit from the supplier, the supplier would be referred as the creditor to the business.