Part 1 · Keeping the books · Chapter 1.12
Who owes whom
Draft: the wording may change.
The idea
Money owed to you behaves like a packet on the shelf: it has an expiry date on money owed. A bill of ten days is fresh. A bill of a hundred days is close to spoiling — the shop may close, the owner may dispute it, the salesman who sold it may have left. So you don't just ask how much is owed; you ask since when.
Receivables and payables
- Receivables — money customers owe us. All of it sits in one group, Sundry Debtors.
- Payables — money we owe suppliers. All of it sits in Sundry Creditors.
Each retailer has their own party ledger. The Sundry Debtors total is just all those party ledgers added up. So there is a simple check: the total of the party ledgers must equal the Sundry Debtors balance. If it doesn't, an entry was posted to the group without a party, or to the wrong party. Find it before you trust either number.
At the counter: an ageing report
On 31 October the Sundry Debtors balance is ₹1,24,000. Four retailers make up most of it. Sort each one's open bills by age:
| Retailer | 0–30 days | 31–60 days | 61–90 days | Over 90 days | Total |
|---|---|---|---|---|---|
| Ravi Stores | 80 | 80 | |||
| Lakshmi Traders | 38,000 | 12,000 | 50,000 | ||
| Murugan Stores | 9,000 | 6,000 | 4,000 | 19,000 | |
| Anbu Medicals | 9,500 | 18,000 | 27,500 | ||
| Others | 22,420 | 5,000 | 27,420 | ||
| Total | 69,500 | 23,000 | 13,500 | 18,000 | 1,24,000 |
Read the right-hand side first. Lakshmi Traders owes the most, but most of it is fresh. Anbu Medicals owes less, but ₹18,000 is past ninety days and nothing new is being billed. That is the call to make today.
Ageing only works if every receipt names the bill it pays (chapter 1.11). If Murugan Stores pays ₹6,000 "on account", the report cannot tell whether the oldest bill is paid or the newest. Most systems assume the oldest; if Murugan meant the newest, the report is wrong and nobody knows.
The other side: what we owe
Run the same report on Sundry Creditors. It tells you which supplier bills are due this week, so you pay on time and don't pay early by mistake. Paying a supplier on time matters for more than goodwill. For registered micro and small suppliers there is a legal payment deadline, and late payment can also affect your income-tax deduction — check the current rule on incometax.gov.in and the MSME portal.
Common mistake
Looking only at the total. "Debtors are ₹1,24,000, same as last month" sounds safe. But if the fresh column shrank and the over-90 column grew, the business is quietly turning good money into bad. Old money is collected least, and by the time it is written off, the profit on many fresh bills has gone with it.
Where you'll use this
In Part 3, credit days on the beat, salesman incentives tied to collection, and the stockist's own payment to the company all run on ageing. A salesman with a clean ageing report earns his collection incentive; one with a long over-90 column does not.
Check yourself
- The party ledgers add up to ₹1,20,000 but Sundry Debtors shows ₹1,24,000. What does that tell you?
- Why is ₹18,000 over ninety days more worrying than ₹38,000 under thirty?
- Why does a receipt "on account" spoil the ageing report?
Answers
- ₹4,000 was posted to the debtors group without a party, or to the wrong place. Find it before trusting either figure.
- Older money is harder to collect; the chance of losing it grows every month.
- The report cannot tell which bill was paid, so old and new bills can show the wrong age.