# Due From Account vs. Due To Account: Understanding Key Differences

![Due From Account](https://www.investopedia.com/thmb/ZMa433VBqo1BKcSW-AhfpsmkbKo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDef_DueFromAccount-Final-4df4a72d0357443194425bf340cfda07.jpg)

*— Investopedia / Sydney Burns*

## What Is a Due From Account?

A due from account is a critical asset account in the general ledger, tracking deposits held at other companies. In contrast, due to accounts manage outgoing obligations. Understanding the roles of these accounts enhances accounting accuracy, facilitates audits, and eases the management of intercompany assets. Within the scope of accounting, these accounts help delineate incoming and outgoing funds, thus optimizing financial record-keeping.

### Key Takeaways

*   A due from account is an asset account that tracks money owed to a company and held at another firm.
*   It is used in conjunction with a due to account, which tracks obligations the company must pay to others.
*   The separation of due from and due to accounts simplifies accounting, especially during audits.
*   Nostro accounts, a type of due from account, are commonly used in international trade to facilitate currency transactions.

## How a Due From Account Functions in Financial Recording

A general ledger stores and organizes data, providing a record of every financial [transaction](https://www.investopedia.com/terms/t/transaction.asp) that takes place during the life of an operating company. In it, investors will find [credit](https://www.investopedia.com/terms/c/credit.asp) and [debit](https://www.investopedia.com/terms/d/debit.asp) accounts**.** The due from account falls into the latter category.

A due from account holds assets in another firm's account that can be considered as a receivable by the company that owns the due from account. Due from accounts track assets owed to a company and are not used for the tracking of any [liabilities](https://www.investopedia.com/terms/l/liability.asp) or [obligations](https://www.investopedia.com/terms/o/obligation.asp). In the case of many businesses, due from accounts hold [deposits](https://www.investopedia.com/terms/d/deposit.asp) made by customers. 

A due from account can have different names based on the transaction type. For example, it can be called intercompany receivables when money for goods or services is received by a [subsidiary](https://www.investopedia.com/terms/s/subsidiary.asp) and is on its way to being forwarded to the [parent company](https://www.investopedia.com/terms/p/parentcompany.asp).

### The Role of Nostro Accounts in International Finance

In international business, a due from account may be called a [nostro account](https://www.investopedia.com/terms/n/nostroaccount.asp). Nostro, a term derived from the Latin word for "ours," holds deposits made by customers in one country before being transferred to the primary due from account held by the business in their home nation, in their home [currency](https://www.investopedia.com/terms/c/currency.asp).

Nostro accounts usually hold funds in the currency of the account's location, not the business's home currency. They are frequently used to facilitate [foreign exchange](https://www.investopedia.com/terms/f/foreign-exchange.asp) and trade transactions.

## Comparing Due From Accounts and Due To Accounts

While the due from account tracks money owed to the company, the due to account is used to track obligations, such as funds, that are owed to another entity. The due from accounts focus on incoming [assets](https://www.investopedia.com/ask/answers/12/what-is-an-asset.asp), also known as receivables, while the due to accounts focus on outgoing assets, also called [payables](https://www.investopedia.com/terms/a/accountspayable.asp). The funds in a due to account are often designated for a particular purpose, such as to fulfill a debt obligation, prior to being transferred into the account.

At no time should either account ever reflect a negative balance, as these accounts track known obligations. If there's a negative balance, it's likely due to data entry errors. Meanwhile, if the account ever reflects a zero balance, this means there are no receivables or payables expected at that time.

## Benefits of Using a Due From Account in Financial Management

The main reason to separate incoming and outgoing funds is to simplify accounting. This keeps all incoming payments focused in one account and outgoing in another. Each transfer can be marked with its source or destination, helping to maintain a simplified paper trail in the event of research, such as an [audit](https://www.investopedia.com/terms/a/audit.asp).

The separation of funds is particularly useful when disbursements are scheduled for payments, transfers to other bank locations, or to a company's subsidiaries. The process of separating receivables and payables also helps in tax charges as movement in and out of due from accounts or due to accounts marks when funds are distributed, and therefore, the appropriate tax charge is required on the funds.

## The Bottom Line

Due from accounts serve as essential tools for tracking money that a company holds at another firm or entity. These accounts differ from due to accounts, which manage obligations owed to others. By segregating incoming receivables from outgoing payables, businesses simplify their accounting processes and improve audit efficiency. This separation becomes especially crucial in international operations, where nostro accounts facilitate foreign exchange and trade transactions. Accurate maintenance of these accounts ensures reliable financial reporting and helps prevent data errors that could lead to incorrect financial conclusions.