Q.From the transactions given in Question 1 above, prepare Mohan's Account (debtor) and Priya's Account (creditor), and state the closing balance of each and what it represents.

A debtor's account and a creditor's account are both personal accounts, but they normally close on opposite sides.

Mohan was sold goods worth ₹15,000 on credit and paid ₹9,000, leaving a debit balance of ₹6,000 — the amount he still owes. Priya supplied goods worth ₹18,000 on credit and was paid ₹10,000, leaving a credit balance of ₹8,000 — the amount the business still owes her.

Mohan's Account (Debtor)

Priya's Account (Creditor)

Mohan's Account closes with a DEBIT balance of ₹6,000 (goods sold ₹15,000 minus cash received ₹9,000) — this is a debtor's account, so a debit balance means Mohan still owes the business ₹6,000, which will appear as a current asset (Sundry Debtors) in the Balance Sheet.

Priya's Account closes with a CREDIT balance of ₹8,000 (goods purchased ₹18,000 minus cash paid ₹10,000) — this is a creditor's account, so a credit balance means the business still owes Priya ₹8,000, which will appear as a current liability (Sundry Creditors) in the Balance Sheet.

For any personal account, first identify whether it is a debtor's or a creditor's account, then remember: a debtor's account normally closes with a DEBIT balance (an asset — he owes us), and a creditor's account normally closes with a CREDIT balance (a liability — we owe him).

Students sometimes post the credit purchase from Priya to the DEBIT side of her account (as if she were a debtor) instead of the credit side — remember, from the business's own point of view, a SUPPLIER (creditor) is CREDITED when goods are purchased from them on credit, since the business now owes them money.