In order to analyze the current state of the company, you will need to derive an analytical balance sheet. Using the data contained in it (current and non-current assets, profit, costs, etc.), you can determine the main factors that hinder the achievement of a high level of profitability or, on the contrary, increase it.
The most important tool of financial analysis is considered to be profitability ratios. This is completely justified. Comparing profits with advance costs/investments allows us to give a fairly accurate assessment of the solvency, and therefore the investment attractiveness of the enterprise.
Return on assets/ROA (mobile and immobilized assets) is the first thing professionals pay attention to. Their ratio demonstrates the extent to which the invested funds pay off, that is, how much profit each monetary unit spent brings.
An analysis of business performance should answer questions regarding: the current financial condition and its dynamics, market stability, creditworthiness, total value of property, solvency, amount of funds (own and borrowed).
Only an integrated approach will provide an understanding of reality and development prospects.
What are accounts receivable?
Accounts receivable are usually understood as assets that are represented by the debts of certain persons to the enterprise. The relevant persons have the status of a debtor, and the enterprise has the status of a creditor. Most often, a receivable arises if an enterprise has supplied a particular product or provided a particular service, but has not received payment. There are other types of accounts receivable. Thus, it can be represented by advances issued to counterparties, bills receivable, and debts of the founders for contributions to the authorized capital (clause 20 of PBU 4/99).
What are current assets?
Current assets are traditionally understood as the resources of an organization that are used to support its economic activities within the operating cycle or other billing period.
Current assets include (Method of recommendations for assessing investment projects of the Ministry of Economy of the Russian Federation, Ministry of Finance of the Russian Federation, Gosstroy of the Russian Federation dated June 21, 1999 No. VK 477):
- raw materials, materials, parts;
- work in progress objects;
- finished products;
- receivable;
- advances to suppliers (in this case, departments separate them from receivables).
Accounts receivable are classified as current assets in accordance with clause 20 of PBU 4/99. In addition, receivables are classified as current assets in the form of a balance sheet approved by the Ministry of Finance of the Russian Federation and used by Russian enterprises (it is recorded in line 1230).
Using the indicator when calculating coefficients
Resolution No. 367, mentioned above, is a practical guide to action for insolvency practitioners. The manager, one of whose responsibilities is to carry out analytical work aimed at assessing the real financial condition of the bankrupt and the prospects for repayment of his debts, uses the SVNA indicator on its own, as well as as part of calculations.
According to the Rules, several economic coefficients are calculated based on the SVNA:
- An indicator of the security of an economic entity with its assets. It is included in the group of coefficients characterizing the level of solvency of the organization. This is the amount of assets per unit of debt, determined by the ratio of the sum of liquid assets and SVNA to liabilities.
- An indicator of an economic entity's provision of its own working capital, or the share of these funds in the total of all current assets. It is part of the group of coefficients that determine the financial stability of an organization. This is the result of the difference between equity and SVNA, in relation to the volume of current assets.
Main
- Adjusted non-current assets (ACNA) are non-current assets from which certain amounts are excluded.
- The data for calculating SVNA is taken from the balance sheet, as well as a number of accounts that decipher its data.
- Calculation of SVNA is necessary when carrying out the bankruptcy process of an organization. The data is used by arbitration managers for the purpose of objectively assessing the debtor’s solvency.
- The obtained data are used on their own and as part of a number of economic coefficients.
Are accounts receivable and current assets areas of the same category?
So, Russian legal norms, at first glance, allow us to say that receivables are always current assets. But it is not entirely correct to say so.
In accordance with paragraph 66 of IFRS IAS 1 “Presentation of Financial Statements”, current assets should include assets that:
- the enterprise intends to sell or use it within the operating cycle;
- the firm holds for the purpose of trade;
- It is expected to be realized in value terms within 12 months after the end of the reporting period.
IAS 1 standard prescribes that other assets should be considered non-current - in particular, those that are long-term in nature (clause 67 of IAS 1).
It turns out that, according to international standards, current assets should be classified mainly as those assets that are expected to be put into the operating cycle within 12 months from the date of their occurrence. The rest can be rightfully classified as non-current. These may include long-term accounts receivable.
Also noteworthy is the letter of the Ministry of Finance of the Russian Federation dated January 24, 2011 No. 07-02-18/01. It states that advances, which in general are classified as current assets, can still be classified as non-current assets. This is possible, according to the Ministry of Finance, if their payment is related to the performance by the contractor of the enterprise of works and services for the construction of fixed assets. At the same time, the department considers other advances as related to current assets (letter of the Ministry of Finance of Russia dated April 20, 2012 No. 07-02-06/113).
It turns out that accounts receivable only in the general case can be classified as current assets. There are possible scenarios in which it would be legitimate to classify it as a non-current asset.
Let us consider the criteria based on which an alternative classification of receivables is acceptable. This nuance will be of interest to us, among other reasons, because in the “Non-current assets” section of the balance sheet form there is no line in which accounts receivable could be reflected in direct wording.
Composition of intangible assets
The intangible assets may include objects:
- Scientific discoveries.
- Works of art, literary works.
- Computer programs.
- Various inventions.
- Trademarks.
- Copyright.
- Rights to use natural resources.
- Industrial designs.
Are intangible assets subject to corporate property tax ?
Obviously, intangible assets usually include rights to various works and inventions. But they may include the reputation of the company. This is an absolutely intangible concept, but it significantly affects the activities of the enterprise.
EXAMPLE. The person acquired an unprofitable company. During its activity, important inventions were made, which attracted the attention of competitors and investors. Promising contracts have been concluded that promise future profits. All this increases the value of the company, opens up new horizons for it, and therefore has all the characteristics of intangible assets.
What is not included in the IMA?
Intangible assets do not include:
- expenses incurred in connection with the registration of a legal entity;
- business qualities of company employees.
How to conduct an inventory of intangible assets ?
The ability to work and qualifications of personnel is an asset of the enterprise, which allows you to make a profit and build a business reputation. However, these objects are not rights. They cannot be transferred and, therefore, do not have all the characteristics of intangible assets.
What accounting data is used when filling out line 1110 “Intangible assets” ?
In what cases is a receivable a non-current asset?
The logic of the legislator, reflected in paragraph 19 of PBU 4/99, generally corresponds to the provisions of the IAS 1 standard, which states that assets should be classified into current and non-current. But the corresponding international standard also includes another noteworthy formulation, according to which the reporting of assets can be optimized based on their liquidity, and not on the division into current and non-current. This option is recommended if it will contribute to the reflection of more reliable and relevant information in reporting documents (clause 60 of IAS 1).
The need to apply an approach in which assets will be reflected in relation to their liquidity may arise in enterprises where it is difficult to distinguish separate operating cycles. For example, such business entities may be financial institutions (clause 63 of IAS 1).
In addition, an organization may have the right to reflect one part of assets, classifying them into current and non-current, and the other - in relation to their liquidity. This is possible if the company is engaged in different types of commercial activities (clause 64 of IAS 1).
Thus, according to the logic of Russian and international norms of financial law, it is legitimate to classify as non-current assets receivables, which are classified as long-term, sold outside the normal operating cycle (generally 12 months).
In addition, it would make sense to separate the receivables, which are the least liquid, from the most liquid and, probably, related to current assets (since liquidity is one of the criteria that characterizes current assets essentially as resources that are regularly and actively involved in business processes).
The criteria for classifying assets that are a receivable into current and non-current must be reflected in the accounting policies of the organization - as a criterion for a reliable assessment of assets (clause 4 of PBU 1/2008).
Reasons for the occurrence of intangible assets
Intangible assets arise on certain grounds. Their presence must be documented. This is especially important when accounting for intangible assets. You can confirm the grounds for obtaining rights with the following documentation:
- Patents.
- Agreements for the transfer of rights.
- Purchase and sale agreements.
- Licenses for the right to operate.
- Agreements on the transfer of rights to inventions and know-how.
Intangible assets can be either created by the enterprise itself or acquired. In the first case, you need to obtain a patent. For example, a company made an invention in the manufacturing industry and is actively using it. However, the discovery will not be included until a patent is granted. Another example: an organization uses the invention of another person. To obtain rights to it, you need to draw up an agreement for the transfer of an intangible asset.
The discovery may belong to the employees of the enterprise. In this case, an agreement on the execution of R&D is concluded with employees. The mere fact that an employee invented something does not mean that the discovery belongs to the enterprise.
Accounts receivable in reporting: nuances
When reflecting receivables in reporting, one should take into account the specific structure and content of the reporting forms used.
So, in the current form of the balance sheet, in addition to line 1230 “Accounts receivable”, there is also line 1190 “Other non-current assets”. It is in them that the most long-term and illiquid receivables can be reflected. This will not contradict:
- standards clause 20 PBU 4/99;
- the provisions of IAS 1, which encourages the appropriate classification of assets into current and non-current, liquid and illiquid;
- the position of the Ministry of Finance discussed above, according to which advances as a type of receivables in some cases can be classified as non-current assets.
You can use a different approach - enter additional lines to the balance. For example, 1231 - for short-term receivables, 1232 - for long-term (in this case, the balance will need to be supplemented with explanatory documents).
Results
Accounts receivable generally refer to current assets. But there may be cases in which it would be more appropriate to classify it as a non-current asset - in particular, if the receivable is clearly long-term in nature, and can also be recognized as an asset with low liquidity. The criteria for classifying assets represented by debtors must be recorded in the company's accounting policies.
You can learn more about the features of accounts receivable accounting in the articles:
- "Accounts receivable are...";
- “Structure of accounts receivable in accounting policies”.
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