What is the difference between a debtor and a creditor?

• A. Debtor owes money to the business; creditor is owed money by the business.
• B. Debtor is the person who pays taxes; creditor is the bank.
• C. Debtor is the buyer; creditor is the supplier.
• D. Debtor handles credit checks; creditor handles collections.

Answer: (A)

Debtor and creditor describe who owes money and who is owed money. A debtor is the person or organization that owes money to someone else, while a creditor is the person or organization that is owed money. In business terms, if a customer buys on credit, the customer is the debtor and the business is the creditor. If the business borrows from a bank, the business is the debtor and the bank is the creditor. The statement fits this idea: the debtor owes money to the business, and the creditor is owed money by the business. The other options mix up or narrow these roles to specific situations, which isn’t how the terms are defined.