![]() ![]() ![]() Therefore it is treated as a Current Liability in the Balance Sheet. The accounting treatment for credit that is due from customers is similar to that of a current liability. Accounting Treatment and Journal Entry for Credit Due to Customers Regardless of the fact that both are current liabilities, their notation is different in terms of what they actually represent. Unearned revenue needs to be settled in the form of goods and services, whereas accounts payable are generally settled via cash or bank. On the contrary, the amount due to customers is a current liability, in the form of unearned revenue. This is because accounts payable is the term that is used to denote the amount that is payable to suppliers of the company. Is Amount Due to Customers same as Accounts Payable?Īmount Due to customers is NOT the same as accounts payable. As a result, they categorize customer advances as unearned revenue, because they have collected money, and the order has still not been processed as yet. A lot of businesses tend to work on advance payments as security deposits from their customers. There might be a number of different reasons as to why credit might be due from customers. Unless the goods or services against that amount have been processed, it will continue to be classified as a current liability, because the organization is liable to process these orders in order to properly classify them as legitimately earned revenue. Related article 7 Ways To Keep Your Financial Data Secure in 2022Ĭredit that is due from customers is a current liability, which needs to be processed by companies in order to recognize that as an earned revenue in their financial statements. Therefore, this is the form of liability from the perspective of the company. This is because it implies that the revenue for the particular transaction has been collected, but goods (or services) against this collected revenue have not been processed. It is also referred to as ‘unearned revenue’. ![]() Credit Due to CustomersĪs far as Credit Due to Customers is concerned, it implies that the business has taken advance from their customers, and the subsequent transaction has still not been made. These are two different terminologies, and hence, they include a number of technicalities that need to be considered in this regard. However, when it comes to credit, credit can be owed to customers and they can also be owed from customers. Therefore, they need credit as a breathing space that can help them to achieve the respective job descriptions. It cannot be avoided because it is normal and the general practice of businesses.Ĭredit is unavoidable because it takes considerable time for products to be in a sellable condition, and in the meantime, they might not have the resources to pay their suppliers upfront. Business credit is considered to be a normal practice. Therefore, their suppliers tend to give them leverage pertaining to payments. This is because businesses need time to process raw materials, and then send them to the market so that they can be sold. ![]() What is Credit and why is Credit unavoidable?īusiness Credit is referred to as payment leverage that is offered by one business to another. However, before getting to that, it is important to understand what ‘credit’ really is, and why is it unavoidable. It has a number of accounting implications that organizations need to be wary about. This is the general norm of almost all business entities, and it is something that is highly unavoidable for almost all business concerns. This implies that they sell, or purchase goods at an earlier date, and the subsequent payment for that particular date is made at a later date. In this regard, it can be seen that almost all businesses work on credit. The modern-day business dynamic is considered to be quite different on a number of grounds. ![]()
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