What happens to the creditor's account when payment is made on account?

When a payment is made on account, the creditor's account is credited. In accounting terms, a credit to an account indicates a decrease in the amount owed to that creditor. This occurs because the creditor's account reflects the total amount owed, and when a payment is received, that total amount decreases.

If you think of it in terms of a liability account, when a company makes a payment, it is effectively reducing its obligations to that creditor. Therefore, the entry in the books would show a credit being made to the creditor’s account, reducing the balance that is owed.

In contrast, the debtor's account would be debited to reflect the reduction in liability. Understanding this concept is crucial for anyone involved in accounting or finance, as it highlights the fundamental relationship between debits and credits in maintaining balanced accounts.