Accounts receivable in the balance sheet (line 1230): decryption

Balance sheet as a way to reflect obligations

Funds and resources, taking part in supporting activities, are constantly changing.
To ensure the most efficient operation of a business entity, you need to know what the funds (assets) of the enterprise consist of, and from what resources (liabilities) it is formed, what is the purpose of their existence. Balancing is a way of grouping the assets and liabilities of an enterprise or institution for a certain date in monetary value, drawing up a table where the left (active) part must necessarily be equal to the (right) passive, where, as in nature, when it “decreases” in one place, it is necessary “ arrives" in another. The balance sheet form is approved by the accounting regulations.

A balance sheet item is a record that reflects either the enterprise’s funds or their sources. The source for filling in the lines are the corresponding entries in the accounting accounts. Items in the balance sheet are formed into sections based on the principle of purpose, urgency and turnover.

The balance sheet is a kind of “snapshot” of a business entity, so a real display of assets and liabilities allows you to evaluate the “health” of the enterprise and the method of “treatment” if necessary. The necessary answer to the main question about debt - to whom we owe, how much, what we are obliged to pay, whose funds we use - is presented in the liability side of the balance sheet.

What are the consequences of the appearance of large amounts of debt?

Different types of accounts receivable are reflected differently in accounting. Accordingly, when an organization has bad debts (especially in large amounts), the enterprise receives less profit. Naturally, it remains without working capital, and if there are many such debtors, the company simply will not be able to produce products, purchase raw materials, pay taxes and salaries to employees.

Such a situation is fraught not only with losses, but can even lead to bankruptcy of the company. That is why balance sheet line 1230, whatever one may say, is one of its important elements.

Formation of line 1550 balance

Current liabilities of the enterprise that cannot be reflected on “target” lines and have a duration of less than 365 days are recorded in line 1550 of the balance sheet.

These include:

• Obligations of the developer for targeted funds, if the contract expiration date is less than 365 days;
• Funds for current expenses, secured by the charter of the enterprise;
• Deposited payments to staff;
• Amounts of value added tax deducted upon prepayment and which must be paid to the budget upon receipt of goods or services.

There is a clarification in Accounting Rules 4/99 (clause 11) - an entry on line 1550 is made only when it is established that they are insignificant, that is, they will not radically affect the financial assessment of the enterprise, but must be shown for accounting accuracy.

The balance on line 1550 consists of the credit balances on accounts and subaccounts 76 and 86 as of the reporting date.

It is not worth displaying in the balance sheet the amounts of value added tax deducted when paying an advance (prepayment) and due for restoration. These amounts are balanced with advances (prepayments) indicated as part of accounts receivable (letter of the Ministry of Finance of Russia dated January 9, 2013 No. 07-02-18/01). As a result, prepayments paid are reflected without tax. This will result in a reduction in the balance amount by the amount of the applicable VAT.

Accounts receivable management

To prevent this state of affairs, it is necessary to be able to properly manage accounts receivable. What methods can be used for this?

• First, you can regularly inventory your debts. This makes it possible to detect bad and doubtful debts before the situation becomes dire.

• Secondly, you need to create a debt repayment schedule and remind counterparties of the relevant debt obligations. This process is carried out by reconciling the accounting department with the dates specified in the contracts and calling or sending letters to partners with specific reminders about payment deadlines.
• Thirdly, you should use an estimate of labor costs to collect the debt. It may happen that the work of lawyers, along with legal costs, will turn out to be more than the amount of debt obligations. In this case, it would be logical to establish a minimum for which the debtors will have to fight. In this case, you will only need to control the debt amount that is above this minimum.
• Fourthly, an assessment of the debtor's solvency will be required. It may happen that it is already at the stage of bankruptcy - then it will be necessary to take urgent measures to include the enterprise in the register of creditors. You can find out whether a bankruptcy claim has been filed against a counterparty from the file of arbitration cases.

If you take appropriate measures in a timely manner, you can avoid receivables from falling into bad debt status.

Accounting for other obligations at the enterprise

To account for other obligations at enterprises and institutions, account 76 “Settlements with various debtors and creditors” is opened. It summarizes information on insurance settlements, claims of various types, amounts of employee wages deposited for various claims based on court decisions, executive orders and other orders.

Sub-accounts must be opened for this account for details:

• 76-1 - displays insurance amounts;
• 76-2 - shows amounts for claims of various types;
• 76-4 - displays the debt on deposited amounts.

They show accrued, but not paid on time, amounts of employee wages. As a rule, such a situation arises due to the non-appearance of recipients. The statute of limitations under Russian law is three years. After this period, the deposited liability must be transferred to account 91, where income from various non-operating transactions is taken into account.

Most of the entries in account 76 are significant for accounting and are recorded on other lines of the balance sheet.

When displayed in the balance sheet, it is impossible to balance the amounts of entries for assets and liabilities (debit and credit balances of account 76) (clause 34 of PBU 4/99).

Line 1550 “Other liabilities” is equal to the credit balance on account 86 (relative to other short-term liabilities) and the amount of the same balance on account 76 (other short-term liabilities).

On balance line 1550, targeted funds can be reflected as information about the amounts intended for targeted financing that are received by the developer if there are less than 365 days left before the transfer of the object.

To do this, a balance transfer is formed from account 86 “Target funds and targeted financing.” If the liability period is more than a year, this amount is recorded on line 1450 of the balance sheet.

The amounts of balances of target financing received in foreign currency are not subject to repeated adjustment or recalculation for expression in the financial statements. They are shown at the rate that was valid on the date of their acceptance onto the balance sheet.

How to show long-term liabilities on the balance sheet

To reflect the value of long-term liabilities in the organization's balance sheet, it is necessary to use information on the credit balance of certain accounts as of the reporting date.

Let us present an algorithm for calculating indicators of long-term liability items in the balance sheet (Order of the Ministry of Finance dated October 31, 2000 No. 94n). Please note that, for example, “K67” means the credit balance of account 67 as of the reporting date.

We remind you that VAT accrued for payment on advances received reduces in the balance sheet the accounts payable from which it was calculated (letter of the Ministry of Finance dated 01/09/2013 No. 07-02-18/01). This means, for example, that an advance received on the reporting date in the amount of 118,000 rubles (including 18% VAT) will be reflected in the balance sheet liability in the amount of 100,000 rubles (118,000 - 118,000 *18/118). Similarly, VAT on an advance issued is not reflected in the liability side, but reduces the amount of receivables in the asset balance sheet.

Long-term obligations are obligations with a maturity period of more than a year.

Long-term liabilities include debt obligations, deferred tax liabilities, and estimated liabilities of the organization.

When assessing the financial condition of an enterprise, long-term liabilities are usually divided into two groups:

• part of long-term accounts payable that will be repaid more than 12 months after the reporting date;
• part of long-term accounts payable that will be repaid before the expiration of the next 12 months after the reporting date.

Debt formation

The appearance of receivables is caused by the impossibility of both parties fulfilling their obligations under the same agreement. For example, first one organization ships the goods, and then another pays for it, but after a certain period of time (a day, two days, a week). During this time gap, debt obligations appear. One of the counterparties has accounts receivable, the other has accounts payable. Debts of this kind can exist for a day, or they can hang around for years.

Of course, in the case of a seller, the ideal sales would be those that are made with full prepayment. But in fact, in practice this does not happen. That is why clients receive deferred payment.

This is beneficial for both parties: for example, the buyer can resell the purchased product at a higher price before payment, and the seller, meanwhile, continues to expand the sales market and does not lose a client just because he cannot make an advance payment. Hence the pattern: the greater the range of clients an enterprise has, the faster its accounts receivable grows on its balance sheet

What does line 1230 consist of? From the Totality of such debt obligations on the part of buyers, suppliers (who have not shipped the goods, but have already received an advance payment), the state (overpayment of taxes), employees (in cases where the company gave them a loan), founders (if they did not pay share in the authorized capital of the company).

The procedure for generating indicators according to the lines of section IV of the balance sheet liabilities

The organization’s liabilities (essentially its borrowed capital) are presented in two liability sections of the balance sheet, depending on their maturity date:

• in Sect. IV “Long-term liabilities” – liabilities whose maturity is more than 12 months after the reporting date;
• in Sect. V “Short-term liabilities” – obligations that must be repaid within the next year.

Section IV of the balance sheet consists of five lines.

This section should reflect information about the organization's obligations, the maturity of which is more than 12 months after the reporting date.

The lines of Section IV, for example, should reflect the amount of a loan or loan raised for a long period of more than a year, the amount of deferred tax and valuation liabilities of the company, as well as the amount of other long-term liabilities.

Let's consider the order of filling out these lines.

Line 1410 “Borrowed funds”:

Line 1410 must reflect data on all long-term loans and borrowings received by the organization for a period of more than 12 months.

At the same time, this line reflects the amount of loans received both in cash and in kind, bank loans, and the company’s obligations under issued financial bills.

To fill out line 1410, take the credit balance of account 67 “Calculations for long-term loans and borrowings.”

Moreover, this should be done only in that part of the debt for which the repayment period exceeds 12 months after the reporting date.

Line 1420 “Deferred tax liabilities”:

Line 1420 is filled out by companies applying PBU 18/02.

To fill out line 1420, take the credit balance of account 77 “Deferred tax liabilities.”

If an organization offsets deferred tax assets and deferred tax liabilities and presents them on a collapsed basis (balanced), it is necessary to fill out page 1420 only if the credit balance of account 77 “Deferred tax liabilities” turns out to be greater than the debit balance of account 09 “Deferred tax assets” (by the amount differences between them).

Line 1430 “Estimated liabilities”:

Line 1430 shows the amount of reserves created in accordance with PBU 8/2010.

For example, this line should reflect the amount of the reserve for warranty repairs.

In this case, this line should indicate only data on long-term estimated liabilities for a period of more than 12 months.

Line 1430 reflects the credit balance of account 96 “Reserves for future expenses” (in terms of obligations with a maturity period of more than 12 months) not written off as of December 31 of the reporting year.

Line 1450 “Other obligations”:

Line 1450 should contain information about other long-term liabilities that were not reflected in the above lines of Section IV.

So, for example, on line 1450 you can indicate data on accounts payable to suppliers and contractors with a repayment period of more than 12 months.

This may be the credit balance of the following accounts:

• 60 “Settlements with suppliers and contractors” in terms of long-term accounts payable for installments or deferred payment provided by suppliers and contractors, if it is more than 12 months;
• 62 “Settlements with buyers and customers” - in terms of debt to buyers and customers, the repayment period of which exceeds 12 months (arising as a result of receipt of advances and prepayments for the upcoming supply of products, goods, performance of work, provision of services, including debt on commercial loans) ;
• 68 “Calculations for taxes and fees” - in terms of long-term debt for taxes and fees (for example, when providing an organization with an investment tax credit, deferment or installment plan for the payment of federal taxes and fees);
• 69 “Calculations for social insurance and security” - in terms of long-term debt on insurance contributions (for example, when restructuring debt to extra-budgetary funds);
• 76 “Settlements with various debtors and creditors” - regarding other long-term accounts payable and obligations;
• 86 “Targeted financing” – in terms of obligations the fulfillment period of which exceeds 12 months after the reporting date. Data on targeted financing is reflected here (account credit 86 “Targeted financing”) (for example, when developer organizations receive targeted financing from investors, which generates the developer’s obligation to investors to transfer the constructed facility to them).

The total amount on lines 1410 - 1450 is reflected on line 1400 “Total for Section IV” of the balance sheet liabilities, which characterizes the total amount of long-term borrowed capital (liabilities) of the organization.

Types of accounts receivable

Debt that arises to the enterprise from second (within the enterprise) or third parties (outside) is classified in several areas. In addition to the sources of origin that were listed earlier, accounts receivable are distinguished by:

• by maturity;
• by methods of repaying obligations;
• according to the probability of repayment.

Thus, the first sign involves the division of receivables into short-term, which is repaid within a year from the moment of its occurrence, and long-term, which in terms of repayment exceeds an annual period.

The second sign involves dividing accounts receivable into normal and overdue. Well, everything is clear here: normal is a debt that has not yet come to be repaid according to the terms of the contract, and overdue is one that involves exceeding the terms of payment under the contract (for example, when the buyer has not paid for goods that were shipped yet a month ago, etc.).

The third feature provides for the differentiation of accounts receivable into doubtful and bad debts. Doubtful debts are not secured by collateral, bank guarantee or surety.

Those debts for which the statute of limitations has already expired are considered bad. For example, a debt is considered hopeless if the debtor company is liquidated, bankrupt and the bailiffs are unable to recover funds from it. Another case of hopelessness is the exclusion of an organization from the Unified State Register of Legal Entities at the initiative of tax inspectors.