Ishika PandeyCurious In: 1. Financial Accounting > Miscellaneous Is debtor an asset or liability ? Is debtor an asset or liability ? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent SidharthBadlani CA Inter Student 2023-02-05T12:58:20+00:00Added an answer on February 5, 2023 at 12:58 pm This answer was edited. Debtors are treated as an asset. A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered. When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise. Debtors are considered assets in the balance sheet and are shown under the head of current assets. For example – Ram Sold goods to Sam on credit, Sam did not pay for the goods immediately, so here Sam is the debtor for Ram because he owes the amount to Ram. This amount will be payable at a later date. Liabilities Vs Assets Liabilities It means the amount owed (payable) by the business. Liability towards the owners ( proprietor or partners ) of the business is termed internal liability. For example, owner’s capital, etc On the other hand, liability towards outsiders, i.e., other than owners ( proprietors or partners ) is termed as an external liability. For example creditors, bank overdrafts, etc. Assets An asset is a resource owned or controlled by a company. The benefit from the asset will accrue to the business in current and future periods. In other words, it’s something that a company owns or controls and can use to generate profits today and in the future. For example – machinery, building, etc. Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. They are readily realizable into cash. In other words, we can say that the expected realization period of current assets is less than the operating cycle period. For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc. Why debtors are treated as assets? Now let me explain to you why debtors are treated as assets and not as liabilities because of the following characteristics : We can say that the expected realization period is less than the operating cycle period. Expected to be converted into cash in the normal course of business. In the business, debtors are treated as current assets which we can see on the asset side of the balance sheet. Debtors have a debit balance. Conclusion Now after the above discussion, I can conclude that debtors are considered to be an asset and not a liability. 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?