Creditor
from class:
Financial Accounting I
Definition
A creditor is an individual or institution that lends money or extends credit to another party. Creditors are entitled to receive repayment of the principal amount along with any agreed-upon interest.
5 Must Know Facts For Your Next Test
- Creditors can be classified into secured and unsecured, depending on whether they have claims backed by collateral.
- In financial accounting, creditors are considered liabilities on a company's balance sheet.
- The relationship between creditors and debtors is legally binding and often involves a contract detailing terms of repayment.
- Interest payments to creditors are recorded as expenses in a company's income statement.
- Creditors assess the creditworthiness of borrowers through credit ratings and financial statements.
Review Questions
- What distinguishes a secured creditor from an unsecured creditor?
- How are creditors represented on a company's balance sheet?
- Why is it important for businesses to maintain good relationships with their creditors?
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