The terms Debt and Borrowings are often used interchangeably, but they have slight differences, especially in accounting, finance, and economics contexts. Here's the clear distinction:
| Aspect | Debt | Borrowings |
|---|---|---|
| Meaning | Debt is a broader term that refers to any amount of money owed by one party to another. | Borrowings are a specific type of debt where money is borrowed from an external party. |
| Scope | Includes all liabilities like borrowings, bonds, debentures, trade payables, etc. | Specifically refers to loans or funds borrowed from banks, financial institutions, or individuals. |
| Source | Can be from suppliers (credit), bonds, loans, or other obligations. | Mainly from banks, financial institutions, or other lenders. |
| Example | - Loan from a bank - Bonds issued - Supplier credit (Accounts Payable) | - Bank Loan - Loan from a financial institution - External borrowings like World Bank loan |
| Usage in Balance Sheet | Shown under liabilities (includes borrowings + other debts) | Shown specifically under "Borrowings" (short-term or long-term) |
| Form | Can be monetary or non-monetary (e.g., goods on credit). | Always monetary (money borrowed). |
✅ Simple Example:
-
Debt:
A company purchases raw materials worth ₹10 lakh on credit (pay later). This is a debt but not a borrowing. -
Borrowing:
The same company takes a ₹50 lakh loan from SBI. This is both debt and borrowing.
✅ Key Point to Remember:
All borrowings are debt, but not all debt is borrowing.
Borrowing is a part (subcategory) of the broader concept of debt.
Here’s a simple flowchart illustration to understand the difference between Debt and Borrowings:
┌────────────────────┐
│ DEBT │
│ (All Liabilities) │
└────────┬───────────┘
│
┌────────────────────┴─────────────────────┐
│ │
┌─────────────┐ ┌──────────────┐
│ Borrowings │ │ Other Debts │
│ (Loan Money)│ │ (Creditors, │
│ │ │ Payables) │
└─────┬───────┘ └─────┬────────┘
│ │
┌─────┴──────────┐ ┌───────┴──────────┐
│ Bank Loans │ │ Supplier Credit │
│ Financial Inst │ │ Bonds Issued │
│ World Bank Loan│ │ Debentures │
└────────────────┘ └──────────────────┘
✅ Explanation of the Flowchart:
- Debt is the parent category that includes all financial obligations.
- Borrowings are part of debt and represent money borrowed from banks, financial institutions, etc.
- Other Debts include dues like supplier credit, trade payables, issued bonds, and debentures, which are not strictly "borrowings."