JEL Classification: М 400; М 410; М 490.
Teslenko T., PhD (Economics), Associate Professor of Accounting, University of the State Fiscal Service of Ukraine, Irpin, Ukraine.
e-mail: aramat2004@ukr.net
The essence and order of forming the reservoir of domestic debts
Abstract. Introduction. The arrears of buyers for the goods (goods), services rendered or works delivered are the largest component of the receivables at the enterprise, therefore sometimes there are cases of non-repayment by the buyers of their obligations. In order to avoid the negative impact of writing off bad debts of buyers to the financial position of the entity, entities may create a reserve for doubtful debts.
Purpose. The purpose of the article is to consider issues related to creating a reserve of doubtful debts and its impact on the formation of costs and financial results of the enterprise.
Results. Doubtful debts are current receivables, about which there is uncertainty about its repayment by the debtor. Such an indebtedness can turn into a hopeless one, that is, on which there is confidence in its non-returning to the debtor or beyond which the limitation period expired. There is a need to write off such a bad debt, which will increase the cost of the enterprise. In order to even write down bad debts, there is a need to create a reserve of doubtful debts. Due to such a provision, depreciation of the negative impact of write-off of bad debts on the financial results of the enterprise is carried out. For the purpose of even distribution over time during the reporting year, the amount of the calculated reserve of doubtful debts is expedient for the monthly deduction of 1/12 of the calculated amount of the provision. At the end of the reporting year, that is, in December, the company will receive the necessary amount of the reserve of doubtful debts, which will allow the write-off in his account of bad debts without a negative impact on the expenses of the activity.
Conclusions. Since receivables from buyers are a financial asset of an enterprise in accordance with international accounting standards, it should be measured at amortized cost. Creation of amortized cost of accounts receivable should be gradual, which involves the distribution of the calculated amount of the reserve evenly in time through the monthly deduction of it for the costs of activities. The gradual formation of the reserve of doubtful debts minimizes the negative impact of the costs of its creation on the financial performance of the enterprise.
Keywords: receivable; reserve of doubtful debts; amortized cost; method of determination of reserve; uniform distribution.
References:
- Ministry of Finance of Ukraine (1999), Polozhennia (standart) bukhhalterskoho obliku 10 “Debitorska zaborhovanist” [Accounting Standard (Standard) 10 “Accounts Receivable”], available at: http://zakon1.rada.gov.ua/cgi-bin/laws/main.cgi (Accessed 01 June 2018).
- Tsereteli, L. (2010), “Reserve for doubtful debts”, Visnyk podatkovoi sluzhby Ukrainy, no. 6 (578), p. 17.
- Mizhnarodnyi standart bukhhalterskoho obliku 39 “Finansovi instrumenty: vyznannia ta otsinka” [International Accounting Standard 39 “Financial Instruments: Recognition and Measurement”, available at: http://zakon3.rada.gov.ua/laws/show/929_015 (Accessed 01 June 2018).
- Bednarchuk, H. (2008), “Reserve for doubtful debts”, Debet-Kredyt, no.20, available at: https://dtkt.com.ua/show/1cid03607.html (Accessed 01 June 2018).
- Boiarova, O. A. and Kuzyk, N. P., “The reserve of doubtful debts as a prudent instrument of influence on the activity of the enterprise”, Oblik i finansy APK, available at: http://magazine.faaf.org.ua/rezerv-sumnivnih-borgiv-yak-obachniy-instrument-vplivu-na-diyalnist-pidpriemstva.html (Accessed 01 June 2018).
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