Debtors and Creditors taken over on behalf of vendors

05/05/2021 1 By indiafreenotes

Sometimes the purchasing company does not take over the debtors and creditors of the vendor company but it agrees to collect book debts and pays off the creditors out of the collections from debtors. For this purpose, the company charges a commission by way of certain percentage both on the amount collected from debtors as well as the amount paid to creditors. Any profit or loss (in the form of discount and bad debts) should be borne by the vendor since the purchasing company does this work on behalf of the vendors.

The following entries are to be passed:

  1. Entries in the Books of Vendors:
(a) For Closing Debtors Account  
  Purchasing Company Suspense, A/c Dr.
      To Debtors A/c