Almost all accounting systems have Trade Debtor (Accounts Receivable) and Trade Creditor (Accounts Payable) accounts. These accounts are known as ‘control accounts’ and should reconcile with Accounts Receivable and Payable reports generated as at a given date. In addition to these, Ardex also maintains a Debtors Loan Account and Creditors Loan Account.
The best way to explain these accounts is to give examples of their use.
Where a horse wins a race and prize money is received, that money needs to be passed on to the owners of the horse. However, if the horse owners have already paid their account up to date and there are insufficient unpaid tax invoices to apply the funds against, your business will actually owe money to the horse owners. These funds owed will be posted to the Debtors Loan Account.
If your business pays a supplier in full for services billed, then after that receives a credit from the supplier, and there are insufficient unpaid supplier bills to apply the credit against, this credit then represents funds owed by the supplier to your business. The credit will therefore be posted to the Creditors Loan Account for allocation against future bills received from the supplier.