Accounts payable and receivable: account, features

Accounts receivable (DZ) is one of the more liquid assets of the company. However, this amount may cause a lack of financing, especially without correlation with obligations and without effective management of these types of debts.

This article discusses the concepts of accounts receivable and company obligations, the dangers associated with the existence of debt assets and payables, as well as some methods to reduce this risk.

The work also presents the accounts of the accounts receivable of the company.

general information

The state of receivables and liabilities of the company, their size have a significant impact on the financial position of the organization. The ability to cover liabilities and reduce the amount of receivables, in other words, the competent management of these items, ensures the financial stability of the company. If the receivable significantly exceeds the obligations, this will have a negative impact on the financial position of the organization and may lead to its bankruptcy, since the redirection of funds from the trade in significant quantities will not allow you to pay off the debt to the creditors of the company on time.

If the obligations exceed the amount due, this situation may lead to insolvency of the organization.

The size and period of debt turnover has a significant impact on the financial situation, therefore, it is necessary to properly account for and manage them. Particular attention should be paid to the difficulties associated with accounting for receivables and payables in each company, since a modern accounting system is required to generate reliable and comprehensive information about the status of settlements with contractors.

The concept of receivables

Accounts receivable are the debt of external organizations and employees to the company itself. Accounts receivable from buyers appear when they are granted deferrals (in this case, they relate to a commercial loan), and also when the client does not fulfill its obligations under an agreement on payment for purchased products, works and services.

Advance payment to sellers of products, works and services is also included in the receivable. Examples of these receivables are rental deposits or amounts paid for an annual subscription to print media.

Accounts receivable include overpayments of tax payments, fees and payments to extra-budgetary funds, as well as various debt of employees of the organization, for example:

• amounts received by employees as part of the report;
• overpayment of remuneration;
• debt on loans purchased from the company;
• debt to cover deficiency and material damage.

The following types of debt are allocated depending on the circumstances:

• payment for services and products for which the time has not yet come;
• debt on payments for the delivery of products or works, if the terms of their transfer expired by agreement;
• payments on bills;
• according to calculations with budgets of all levels;
• remuneration of employees of the company.

Accounts receivable for accounting

In the balance sheet, the receivable is reflected in line 1230 of the second section.

Accounts receivable for synthetic and analytical accounting are as follows: 60, 62, 68, 69, 70, 71, 73, 75, 76.

All of them are active-passive, which means the fact of the possibility of both a debit and a credit balance.

The use of accounts receivable is reflected below.

The table shows the main examples of transactions for accounting receivables.

Accounts receivable and payable as sources of risk

The following risks can be distinguished that are associated with receivables and payments:

• financial risk (insolvency of debtors);
• solvency risk (the possibility of collapse of creditors);
• operational risk (losses due to deficiencies in control and management systems).

What actions is the company obliged to take in order to reduce the impact of risk on its current activities?

The work, which was aimed at preventing the appearance of overdue and bad debts of customers (financial risk), begins with an assessment of visitor confidence before concluding a contract. It is not enough to comprehensively examine the client’s financial statements for this assessment. It is important to have data on the potential buyer’s share in litigation, tax disputes, inspect the capabilities of the executives who sign the legislative documents, and carry out other necessary checks.

Naturally, the most reliable way to prevent debt collection from customers is to work on the basis of prepayment, but in market conditions it is necessary to look for compromise payment options, including the provision of a deferred payment.

Work on forecasting cash flows depending on the delay and receipt of payment can significantly reduce the risk of loss of solvency.

Reducing operational risk is obtained due to the creation of a transparent accounting system for accounts receivable and payable of the company. One of the components of receivables management is its insurance.

Accounts receivable insurance

How it works? The organization enters into a contract with an insurance company, which defines the basic conditions of insurance, as well as a list of indemnities, the procedure for assessing the monetary condition of debtors, and so on.

For example, in the contract it can be determined that the insured event is the failure of the buyer to fulfill his obligations during the period indicated in it.

The insurance company and the policyholder determine the list and amount of receivables to be insured. The organization does not insure accounts receivable as a whole, but painstakingly assesses the risks of non-payments in the context of each insured client.

What happens as a result of the insurance option? The company pays the client the amount of the insured receivables at a certain discount, that is, part of the amount owed is debited to the costs of the company. After which the right to claim the debt goes to the insurance itself.

Despite the fact that accounts receivable insurance is a fairly reliable tool to reduce financial risks, the company must compare future costs and the implied benefits of this type of insurance.

Write-off of receivables

Write-off of accounts receivable is an operation often carried out by accountants. You cannot write off all the debts of the company, but only those that correspond to the characteristics of the debt, which is unrealistic to return. The concept of bad debt is given in paragraph 2 of Art. 266 of the Tax Code of the Russian Federation.

It includes overdue debt, as well as the insolvency of the company being liquidated.

Consider which accounts for writing off receivables are used in accounting.

The procedure for writing off receivables in the accounting of a company depends on the presence of a specially formed reserve.

If it is, a record is made: Dt 63 - Kt 62 (76 or other accounts receivable to account for it) - write-off of receivables from the reserve.

A situation of excess of debt over the formed reserve is possible.

In this situation, write: Dt 91.2 - Kt 62 (or another account to account for receivables).

Write-off of DB from reserve funds is a situation that requires careful monitoring for a long time.

Debt written off within 5 years is required to be recorded in debit of account 007 in full. And only after this period it is written off forever.

In the case when the reserve is not formed, the following transactions are made:

• Dt 91.2 - Kt 62 (or other accounts receivable accounts for its accounting) - unrealized funds receivable were written off to expenses;
• Dt 007 - debt written off is recorded on the balance sheet.

After the receivable has been written off, the documentation for these operations should be kept for 5 years. In the same period, the financial condition of the debtor is monitored. On account 007, analytical accounting is carried out in the context of each counterparty.

The process of writing off receivables from accounting accounts is simple but legally regulated. In case of violation, requests from the tax authorities and claims are possible, which is fraught with a fine due to accounting errors. Therefore, before you write off the receivables, you must make sure that an inventory has been carried out and an appropriate order has been issued.

The concept of accounts payable

This is the name of the debt to external partners, to the budget and extra-budgetary funds, as well as to employees of the company. A creditor appears if the company received the goods, credited them to the account, but did not fulfill the payment obligation. Debt to creditors is the current and overdue amount depending on the deferred payment right and the debt repayment date.

For example, salary is recorded in accounting on the last day of the month and is paid at the beginning of the next. At the end of the month, the payables to the personnel of the company for the payment of salaries will be current. In the event of non-payment of wages by the due date, this amount of debt will be considered overdue. The lender to some extent is useful for companies, as they receive for temporary use funds belonging to other organizations. Accrual of creditor to sellers and contractors is carried out on the facts:

• settlement documents for accepted inventory objects;
• acceptance of goods and materials from suppliers;
• identification of surplus.

Accounts receivable are reflected in the accounts as current assets due to the fact that they are circulated to the organization in one cycle. If the repayment of the receivable is expected later than after 12 months, this fact should be recorded in the explanatory notes in the account.

Account payable account

Depending on the maturity, loans are divided into long-term (more than a year) and short-term (less than a year). In accordance with this systematization, they are reflected in the balance sheet.

The lender in the latter represents either a long-term liability, which is reflected in section IV, or short-term, indicated in line V of section 520.

Information on the current debt of the company in the form of creditor is reflected in the following accounts:

• 62 (in front of customers);
• 60 (in front of suppliers);
• 71 (to accountable persons);
• 75 (to the founders);
• 70 (in front of the staff).

These accounts are active-passive. They can have both debit and credit balances.

The ratio of receivables and payables

Accounts receivable and payable are necessary indicators of the financial statements of the company, which are to be decoded in the explanatory notes to the accounting reports.

The interpretation of these balance sheet items is primarily of interest to reporting users, since these assets and liabilities can be sources of risks.

The relationship between these categories is a fundamental subject of study of the financial condition of the company. A careful examination of accounts receivable and payable is required.

If the lender outperforms the receivable, this may mean that the company lacks working capital, and also that it has the required number of other resources, such as cash.

The deferral of payments that are made to customers must be less than or equal to the deferral of payments to sellers of the company. In another option, the organization will experience an acute shortage of funds necessary for settlements with creditors, and at the same time there will be additional expenses associated with this situation for paying fines and penalties.

Conclusion

In order to ensure the survival of the company and its competitiveness for its own customers, including providing them with deferred payment, the enterprise must find a source of allocation of financial resources of its own expenses for the period of deferment. The accounts receivable and accounts payable of the organization reflect data on the amounts that the company owes and which it itself owes.

The lender is one of those sources of allocation of funds for the current work of the company. Proper and efficient management and accounting of receivables and payables is the key to achieving success in business.

Accounts receivable in accounting can be active-passive and have both debit and credit balances.