What Does "Due to Account" Mean?
Due to account refers to a liability account found on an accounting statement. Such an account is often recorded under the general ledger and will specify the total amount owed to another account. The account owed could belong to an external creditor, another business, an individual or, often, an internal department or business division. On the other hand, a due from account recorded in the general ledger specifies all amounts the business expects to receive from another party or an internal business. In order to best understand how each of these terms fit together to clarify the accounting often used in the course of business, it helps to examine the details of each term as well as a few related terms.
An accounting statement is a document that records the total amount of all debts the business owes. Liability accounts are recorded on the accounting statement individually, to show each person or entity in which the business owes money yet to be paid. Within the accounting statement a general ledger is included, which illustrates all the business's finance accounts. This ledger is most often depicted using two columns: one showing account debits, and the opposite side reflecting account credit. It is in these columns where both the due to account and the due from account terminology are utilized.
Recorded as a credit account, the due to account will thus detail an amount payable to another source; however, it is not always recorded with this exact terminology. Sometimes businesses will use the term intercompany payables to specify this type of accounting when the business department owes money to another part of the business. Furthermore, the due to account is used along with the due from account. With the due from account, the general ledger reflects on the opposite side of the column amounts the business expects to receive from other sources. For intercompany proceeds, this may be recorded as intercompany receivables.
Reconciliation of all accounts is the purpose of keeping an accurate, up-to-date general ledger within the accounting statement. Making this a less labor intensive process, the use of two columns helps to keep track of all credit and debit accounts, using one centralized source. Important to note as well, the general ledger is usually considered a finalized source of reconciliation. Therefore, when included in the accounting statement not only is it used internally, but also by external entities and auditors to access the organization's financial health.
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