What is trade debtor?


Trade Debtors     

Receivables from credit customers are known as trade debtors.  After stocks, trade debtors is usually the largest item among current assets on a balance sheet.  Good credit granting and debt collection policies are important in management of trade debtors.  A lax credit policy increases sales but the risk of non-collection increases as well. A stringent credit policy will increase the likelihood of collection but may result in decrease in sales volume.

A debtor may happen to have a temporary credit balance, as is the case when customers pay in advance of delivery. Such balances are isolated and reported in the balance sheet as current liabilities titled "Debtors with credit balances".

The subsidiary ledger has a wealth of information regarding particulars and history of individual customer accounts.  This is important information in credit extension decisions and decisions on provision for doubtful accounts and write offs of uncollectible accounts.

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