In other words, it is defined as the total current assets divided by the total current liabilities. Lastly, the accounts payable ledger does not need to be handled manually. ABC is a stationary company that purchased Natraj pens and pencils worth INR 1 lakh on a credit basis on a 90 day credit period. It also purchased Faber Castle crayons and paints worth INR 50,000 on a 60 day credit period. Let’s see how ABC company records this transaction under the ‘Sundry Creditors’ section and treats it as a liability.

Sundry Debtors are also synonyms to Accounts Receivable as this is the money the business will receive in due course of time. You can specify a credit period of say 30 days in the party ledger for the party to make the payments. This helps to avoid conflicts with your parties, systematically track your outstanding payables, and make timely payments to your parties.

What is a good ratio for a company’s debt-to-equity ratio?

These creditors are a crucial aspect of a company’s financial dealings, representing the outstanding payments that the business needs to settle in the near future. The term “sundry” implies that these creditors are diverse and can include suppliers, vendors, service providers, or any party extending credit to the business. Such businesses who provide the goods on a credit basis are called ‘Sundry Creditors’ to the receiving company. All such parties from whom the goods are bought on credit come under sundry creditors or accounts payable, which is another term used for a sundry creditor.

What is accounts payable?

Whenever credit purchases are conducted throughout a fiscal year, they are recorded as credits in creditors’ accounts, thus contributing to an augmentation of creditors’ balance. Typically, sundry creditors arise from core business operations, such as the purchase of goods or services. For example, if a company’s current assets are $80,000 and its current liabilities are $64,000, its current ratio is 125%. However, if the current ratio of a company is below 1, it shows that it has more current liabilities than current assets (i.e., negative working capital). However, an examination of the composition of current assets reveals that the total cash and debtors of Company X account for merely one-third of the total current assets. The current ratio or working capital ratio is a ratio of current assets to current liabilities within a business.

Calculate current assets and current liabilities when the current ratio is 2.5 and working capital is $180,000. However, if one company’s debt is mostly short-term debt, it might run into cash flow issues if not enough revenue is generated to meet its obligations. The treatment of current liabilities for each company can vary based on the sector or industry. Current liabilities are used by analysts, accountants, and investors to gauge how well a company can meet its short-term financial obligations.

1. All the purchases need to be tracked efficiently to maintain smooth functioning of a business organisation.
2. The buyers tend to pay money to the seller later, and sundry creditors become the liability of the business.
3. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources.
4. When the debt-to-equity ratio is high, it means that creditors have invested more in a business than the owners, and the creditors will suffer more in adverse times than the owners.
5. In this case, current liabilities are expressed as 1 and current assets are expressed as whatever proportionate figure they come to.

Reviewed by Subject Matter Experts

This ratio is a claim of creditors to the assets of the organization. It is calculated by dividing total assets (i.e., current assets and long-term assets) by tangible network. Ideally, suppliers would like shorter sundry creditors is current liabilities terms so that they’re paid sooner rather than later—helping their cash flow.

Examples of Accrued Expenses

In the separate ledger for the sundry creditors, details about the creditors, the amount due, and the due date are mentioned. The analysis of current liabilities is important to investors and creditors. Banks, for example, want to know before extending credit whether a company is collecting—or getting paid—for its accounts receivables in a timely manner. On the other hand, on-time payment of the company’s payables is important as well. Both the current and quick ratios help with the analysis of a company’s financial solvency and management of its current liabilities. You can get an overview of the amount and the creditors to whom you owe money and how much you owe each creditor and the duration of such pending payments.

Creditors are people or entities from whom goods have been purchased or services have been availed on credit and payment is yet to be made against that. In addition, creditors are treated as current liabilities in a business. Short-term debt is typically the total of debt payments owed within the next year. The amount of short-term debt as compared to long-term debt is important when analyzing a company’s financial health. For example, let’s say that two companies in the same industry might have the same amount of total debt.

Shareholders’ funds include equity, preference share capital, profits or losses, reserves, and surplus. When the payment is received from the buyer, the following entry is passed. Suppose ‘Shlok Machines’ sold equipment worth Rs. 1,00,000 to ‘Suresh Tools’ on Credit. The buyer (Suresh Tools) agrees to clear the invoice in the future accounting period. When the payment is made to the Creditor in cash, cheque, or electronic transfer, the following entry is passed. Save taxes with Clear by investing in tax saving mutual funds (ELSS) online.

When a business purchases goods or services but doesn’t make an immediate payment, it incurs a liability. This outstanding amount is recorded in the company’s books as sundry creditors. Effectively managing these liabilities is integral to maintaining financial stability and fostering positive relationships within the business ecosystem. Within the balance sheet, sundry creditors are reported in the liability section of the financial statement, specifically under the category’ sundry creditor’ or ‘accounts payable’.