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Debtor and creditor records

Record-keeping information for businesses to help keep track of debtors and creditors.

Last updated 27 November 2019

Very few businesses receive income and pay expenses only in cash. Most businesses sell goods on credit, where you:

  • issue an invoice to your customer, who pays later
  • receive invoices from your suppliers, which you need to pay by a certain date.

Customers who have not yet paid you, are your debtors. Suppliers you have not yet paid are your creditors.

A good record-keeping system will allow you to keep track of both debtors and creditors, and ensure you:

  • can promptly follow up overdue accounts
  • know which accounts you need to pay and when
  • have better control over your cash flow.

You can keep debtor and creditor records manually but some commercially available software packages will produce invoices, record the amounts receivable or payable, update accounts when payments are received or made, and tally debtors and creditors automatically.

Cash or accruals accounting

The accounting method you use to manage your business will determine when amounts will be shown when reporting income or expenses for a specific period (for example, month, quarter or year).

Cash accounting tracks the actual money coming in and out of your business. For example, if you get an invoice for something, you don't record the cost until you've actually paid the invoice.

Accrual accounting refers to recording income and expenses when they take place, instead of when money actually changes hands. For example, if you issue an invoice for a project you've completed, you record the income in your books even though you haven't received payment yet.

If your business accounts on an accruals basis, you will need to compile a list of debtors and creditors at 30 June to determine your actual income and expenses for the year for income tax purposes.

You may choose to have a registered tax or BAS agent, or bookkeeper, assist you with this type of accounting.

If you register for GST you will be required to choose to report GST on a cash or non-cash basis. These reporting methods have a different purpose and shouldn't be confused with the income tax accounting methods discussed above.

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QC60728