Accounting Assistant at RSM Poland
The results of active operations of business entities that seek to generate revenue are liabilities and receivables arising out of contracts concluded with contracting parties or resulting from the rights and obligations imposed by tax offices, the Social Insurance Institution (ZUS) or other state administration units. Today, I would like to draw your attention to the specific nature of receivables and the method of their presentation in the company's balance sheet.
Definition of receivables
At the beginning, it is worth referring to the Accounting Act where receivable is defined as: assets controlled by the entity with a reliably determined value, resulting from past events, which will cause the inflow of economic benefits to the entity in the future. The basic division of receivables is the differentiation due to their maturity date. The following receivables are listed here:
- long-term - maturity over 12 months,
- short-term - maturity below 12 months.
It is important to remember that in case of trade receivables, this division does not apply. All receivables related to the performed services are classified as short-term receivables, while taking into account the division into trade receivables due before and after 12 months.
In addition, both in short- and long-term receivables, the following receivables are distinguished:
- from related entities,
- from other entities in which the company holds equity interests,
- from other entities.
The detailed presentation of receivables in the balance sheet is shown in the table below:
Stocktaking of receivables
Before the classification of receivables to relevant assets item, their actual inventory needs to be verified with the use of stocktaking.
According to the balance sheet law, it should be performed at least once a year, as at the balance sheet date. The Act provides for the commencement of stocktaking in the last quarter of the year and its completion until 15 January.
One of the possibilities to verify the actual inventory of assets (including receivables), and at the same time the most appropriate and most common, is to verify balances. For this purpose, the creditor may request the contracting party to confirm the status of receivables in writing. The contracting party should send two copies of the so-called balance confirmation (a list of items indicating a list of receivables), one of which, upon verification and signing, will be sent back to the contracting party.
The legislator also provides for a second method of carrying out the stocktaking of receivables. It is the verification of their real value by comparing the accounting data with relevant documents. However, this is subject to Art. 26(1)(3) of the Accounting Act, according to which it is acceptable only when the reconciliation of balances would not be possible due to justified reasons. Such a situation may occur when a contracting party is not subject to the provisions of the Accounting Act (does not operate a business). Such persons frequently fail to send back the balance confirmation. Similar situations occur in case of receivables claimed in court, where, e.g. judgements or statements of claims will be useful.
Valuation of receivables
Another extremely important step is to perform the valuation of receivables. As at the balance sheet date, receivables are measured according to Art. 28 (1)(7) of the Accounting Act in the amount of the required payment while exercising the prudence principle, i.e. together with charged interest and by making deductions for impairment if there are circumstances justifying their creation.
The amount of the required payment of receivable is determined by the nominal amount of the receivable. In addition, it may be increased by contractual penalties, awarded court fees and contractual or statutory interest charged as a result of a delay in payments expected by the entity, as at the balance sheet date.
Prudence in valuation consists also in the determination of the degree of probability of the receipt of the required payment and proper update of the receivable values by a revaluation write-off. The effectively conducted stocktaking may be helpful in the determination of the degree of probability or its change.
In case of receivables denominated in foreign currencies, they shall be valued as at the balance sheet date in accordance with Art. 30(1) of the Accounting Act at the average exchange rate published on that date for a given currency by the National Bank of Poland. In connection with the balance sheet valuation there are positive or negative differences, which adjust the value of receivables, by making their picture in the balance sheet real.
The presentation of receivables consistent with the balance sheet law regulations requires a number of steps to be taken by an entity. Starting from stocktaking, through making their collection plausible, or making write-downs, valuation, to their recognition under the relevant balance sheet item. However, this is only one of the many obligations that the persons preparing reliable financial reports are responsible for...