Accounts receivable are the most important and integral part of the working capital of any company. This term means the amount of the obligation owed to the company by other legal entities and individuals for the supply of goods or the performance of any services.
A company or citizen who has obligations to others is called a debtor. That is, the receivable occurs when the goods are delivered to the client or the service is completed, but the funds are not transferred to the counterparty’s account, and direct payment is deferred for a certain period. In addition, it is called the future economic benefits, which is an asset.
Concept
Issues of receivables are given a lot of attention in the literature. Every business entity is faced with it. It has become part of the business turnover of companies.
The receivable is part of the company's assets, is reflected in the left side of the balance sheet in current assets. Therefore, it can be safely called the object of civil rights of the company.
The presence of receivables is a normal occurrence for most modern companies. If lenders are more or less clear, then the second option of obligations raises many questions for both parties in terms of mutual settlements.
Accounts receivable are liabilities of other enterprises (buyers, borrowers) for a business. These obligations can be considered in two ways. On the one hand, DZ is the loss of the company, but, on the other hand, its future benefit. It all depends on the correct financial management policy of the head and the integrity of the recipients of goods and services. A competent approach to the existing receivables management policy is the key to the success of the company.
Kinds
Depending on the repayment period, the amount of RSs are divided into the following categories:
- Short-term current debt is the sum of all liabilities that are planned to be repaid within one year.
- Long-term debt includes payments that are expected to be paid in twelve months.
The criterion for the classification of overdue debts in this case is the probability of their return, that is, immediate receipt of funds. Based on this, overdue remote sensing can be classified as follows:
- Doubtful debt. It occurs in cases where the company is not sure of its repayment within a certain time. An obligation is considered doubtful if the financial condition of the debtor becomes unsatisfactory. However, the probability of receiving a payment is still there.
- A hopeless amount is the amount of debts for which there is absolute certainty that they will not be paid. That is, such a situation arises when the debtor becomes bankrupt.
In order to avoid defaults on remote sensing, companies create reserves for doubtful debts, the amount of which is determined individually for each counterparty.
In commercial organizations, almost 90 percent of the debt falls on the first type. At the enterprise, there are only two reasons for the appearance of DZ:
- Conducting economic and production activities, which means the fact that the organization has business relations with other companies.
- Bad payment discipline. This means not only violation of obligations by debtors, but also illiterate drafting of contracts.
Formation problems
Companies often have the following situation when, according to the report on financial results, it can demonstrate high profitability, that is, success and development in the market. However, the receivable has a significant share in the current assets of this company, the funds in its accounts are either small or non-existent. If money was not invested in the further development of production, then this is usually a bad strategy for the company. In this situation, the organization does not have enough real funds that pay off debts to other companies or banks, and also pay employees, taxes and fees.
Such situations arise for a number of reasons. External and internal factors affect the receivables. External factors include the impact of the economic and political environment.
Internal factors include illiterate DZ management policy, adverse conditions for the lender, lack of measures to influence counterparties, incorrect pricing policy, etc.
Organization of accounting processes
Organization of accounts receivable is associated with the following accounts: 60, 62, 68, 69, 70, 71, 73, 75, 76.
The above accounts are active-passive, that is, a debit and credit balance is allowed. Accordingly, DZ means the formation of a debit balance in the accounts of accounting calculations.
Accounts receivable and a sample of typical operations for accounting accounts are presented in the table below.
Business operation | Dt | Ct |
Advance payment paid to supplier | 60 | 51, 52 |
Products shipped to customer | 62 | 90 |
Accrued temporary disability benefits at the expense of the Social Insurance Fund | 69 | 70 |
Advance payment issued to employees | 70 | 50, 51, etc. |
Under the report issued money for a business trip | 71 | 50, 51, etc. |
Loans issued to employees | 73 | 50, 51, etc. |
The debt of the founders for the payment of the authorized capital is reflected | 75 | 80 |
Loan interest accrued | 76 | 91 |
Accounting entries for writing off receivables must differ from the conditions for their repayment. In the end, the repayment of DZ is the fulfillment of the obligation of the debtor to pay money. Write-off is a reference to financial results or other sources of remote sensing that will not be repaid.
For example, redemption of customers ’DZ for goods sent to them will be reflected as follows:
Dt 51, 52 (and others) - CT 62.
Write-off of debt on a loan issued by an employee in connection with a debt forgiveness:
Dt 91, sub-account “Other expenses” - Kt 73.
When writing off a DZ, which was previously recognized as doubtful and for which a reserve was created, an account is made:
Dt 63 “Provisions for doubtful debts” - Kt 62, 60, etc.
The table shows the main accounts that are used to account for receivables.
Account number | Characteristic |
60 | Advances for goods, services and work performed |
62 | Debts for goods that must be paid to the company |
68 | Tax overpayment |
69 | Overpayment of premiums |
70 | Overpayment of salaries to employees |
71 | Advances for employee report |
73 | Employee Loans |
75 | Debts on deposits of founders |
76 | Miscellaneous operations |
63 | Debt reserve |
Inventory
Inventory of receivables is a reconciliation of documents with counterparties, confirmation of the existence of debt and its size.
The timing of the inventory relates to a specific set date. In this case, the company sends its debtors information about the need to check. But, as a rule, there are violations of this process. Firstly, an inventory can take a lot of time, in some companies it can take about a month. Secondly, not all debtors respond to requests, especially those whose obligations have been waiting for a long time when it is written off.
In addition, the problem is resolving data inconsistency. In this case, it is necessary to check all the operations performed with this company, which creates special difficulties when you are in another city or, even worse, in another country. When sending a DZ certificate, it is necessary to take into account the fact that the company can be both a debtor and a creditor at the same time. Even if, according to estimates, the company became a debtor, the application should be sent indicating the amount of RS and KZ.
Limitation period
The receivables limitation period is the period of time that is granted to the creditor for filing an application with the court to recover the required amounts. This parameter has a duration of 3 years from the date of its formation. The period reference shall be taken into account from the day following the day of violation of the contractual terms. Agreements of the parties establish deadlines for receivables and transfers of funds. It is the next day that is taken as the starting point for the countdown.
Each obligation should be recorded separately, even if there is only one counterparty. This is the only way to organize accounts receivable correctly.
What debts are considered bad?
Bad amounts with expired receivables represent cash that a firm cannot claim from its counterparties for certain reasons. For tax purposes, bad debts that are not refundable are recognized if the following conditions are met:
- The receivables are past due. It is equal to 3 years. This parameter takes effect from the moment when the person found out or should have known about the violation of his right.
- The obligation of the debtor is terminated due to the establishment of the fact of inability to fulfill it on the basis of an act of state power or liquidation of the organization.
- The decision of the bailiff on the termination of enforcement proceedings.
In such a situation, the writ of execution is returned for reasons:
- the debtor’s location has not been established or it is impossible to obtain information on the availability of money and other valuables;
- the debtor does not have property that may be seized.
Write-off
Debt relates to overdue upon the expiration of the limitation period (three years). The amount is considered hopeless if the firm is unable to pay the obligation. Based on this, the company has the right to write off the identified obligations. Write-off of hopeless overdue DZ is allowed on the last day of the period during which the period has been extended.
Expired receivables can be written off in two ways. Firstly, it is possible to use the reserve for doubtful debts for this purpose, if the reserve for these obligations has not been provided, and then write off the revealed amounts to the financial results.
Write-offs of receivables should be made exclusively for each obligation separately. The basis for this may be the results of an inventory, written confirmation or order of the head of the company.
How to write off accounts receivable?
To write off receivables, it is necessary to take an inventory of liabilities, and record its results in the form of INV-17.
Then the manager issues an order on the liquidation of the company's debt on the basis of an inventory act and an accounting statement. This document should include the amount of the debt, the period of writing off the DZ, a description of the situation in which the amount became hopeless, a reference to the quantity and date of the inventory.
The procedure for writing off a claim receivable when accounting for a company depends on the availability of reserve funds.
If the debt exceeds the reserve, the difference is explained as follows: Dt 91.2 Kt 62 (or another account for accounting for DZ).
Write-offs of claims receivable for five years should be accounted for in debit of account 007 in full. And only after this period is it written off forever.
The write-off of accounts receivable and the posting of these procedures are reflected below.
If the company has not created a reserve, the following transactions are made:
- Dt 91.2 Kt 62 - write-off of unrealistic receivable funds as expenses;
- Dt 007 - deducted receivables are recorded off the balance sheet.
You can imagine the algorithm of the company for the administration of remote sensing in the form of a sequence of steps:
- calculation and determination of amounts;
- analysis of the dynamics of the amounts;
- identification of the reasons for the formation of RS;
- reserve determination;
- write-off of DZ, which is recognized as hopeless.
Collection of overdue receivables
Refunds can be made in various ways, for example, by filing a complaint or contacting the judiciary.
When submitting a foreclosure claim to obtain a reminder, the following points should be indicated:
- the requirement to recover an expired DZ;
- detailed calculation of the amount;
- calculation of interest accrual;
- deadline for repayment of obligations;
- warning of going to court.
In addition, the claim must be signed by an authorized person, and copies of all documents related to the debt must be certified. If the debtor received the letter and did not respond in a timely manner, then with a clear conscience, you can apply to the court with a request to return the DZ.
Issues of sound management of remote sensing
Modern companies are constantly involved in the development of a DZ management policy, since it underlies the rational distribution of company funds, as well as in the work with debtors in respect of their payment discipline. Ensuring the proper management of remote sensing is not an easy task. It is necessary not only to monitor the stability of receiving payments on debts, the correctness of the drafting of contracts and the status of contractors.
The main issues of implementing the DZ management policy are as follows:
- classification of debtors in accordance with their solvency;
- determination of loan conditions;
- analysis of the condition of remote sensing;
- stimulation of counterparties to pay off obligations (system of discounts, fines);
- formation of reserves;
- formation of cash flow plans and forecasts;
- analysis of sales turnover.
Conclusion
Accounts receivable are characteristic of the business activities of most modern enterprises. Having understood what DZ means, it remains to take it under control in the company. It is also important to have a well-defined system of rules that helps one way or another to solve many problems associated with remote sensing and its return. If the management will follow all the indicators and points described, then the company may not worry about future forecasts.