Case Breakdown: Movie Teen Chor
The scene that you saw shows a shopkeeper giving credit to a customer. Ram Laal (Customer) wants some tea leaves and sugar on credit. The wife of the shopkeeper isn’t happy with this idea and refuses to give him anything. The shopkeeper knows Ram Laal and gives him sugar and tea leaves on udhaar (borrow in English).
What is Credit?
Credit can be defined as the borrower receiving goods, services, or money with a promise to pay at a later date. The lender (shopkeeper, in this case) would receive money at a future time period. While the goods (i.e. sugar and tea leaves) are already delivered to him. Credit, in financial terms, means many instruments that are used in borrowing.
Credit Cycle
A company can purchase raw materials on a credit basis and pay the supplier later when the raw material is converted into a finished good. For example, Marico purchased coconuts from a supplier on credit (Money will be paid later). Marico converts coconuts into coconut oil (finished good). When this happens, Marico pays the supplier. This is also called a credit cycle.
Suppliers tend to have credit cycle days, these can be anywhere from three days to thirty-one days. Suppliers can get half payments at the time of delivery or full payment at a later date. This depends on the supplier. The company can promise by signing an IOU or a promissory note to repay the balance money at a later date.
Credit also depends on the creditworthiness of the borrower. This means if the track record of the borrower is good, he has a high chance of getting credit.
Types of Credit:
Personal loans, home loans, and lines of credit are all types of credit instruments. A credit card issued by the bank also allows a customer to purchase goods on credit and pay at a later date to the bank.
From an accounting perspective, if McDonald’s buys a fryer (in which all things are fried) on credit, then in the balance sheet of Mcdonald’s, fixed assets (Fryer) would increase, and also the accounts payable (current liability) would increase. This happens because Mcdonald’s would have to pay later.
Similarly, if a bank extends a loan to Mcdonalds’, then Mcdonald’s has to repay the loan within 5 years. In this case, the bank is the creditor of McDonald’s.
[…] Credit cards are generally issued by banks and/or financial institutions. They are thin rectangular plastic card (as you witnessed in the scene), they are lightweight and can be carried around anywhere.They can be used to pay bills, make purchases anywhere in the country. […]
[…] order to guarantee the loan. Most standard types of mortgages and auto loans are considered secured credit, because the loan holder can take possession of your house or car if you don’t pay as […]
[…] give receipts when someone purchases anything of value. This receipt includes discount, credit and any other adjustment. Many a times, this receipt may also indicate the mode of payment […]
[…] of the rule of accountancy is that every debit has a credit, hence it is also called a double entry book-keeping. This also means that two accounts will be […]
[…] order to guarantee the loan. Most standard types of mortgages and auto loans are considered secured credit, because the loan holder can take possession of your house or car if you don’t pay as agreed. It […]
[…] value to guarantee the loan. Most standard types of mortgages and auto loans are considered secured credit because the loan holder can take possession of your house or car if you don’t pay as […]