Stocktaking of receivables is one of the most important obligations of entities keeping accounting books (full accounting). The process needs particular attention because of its complexity and its importance for the correctness of the financial statements. A properly conducted stocktake of receivables makes it possible to verify whether the amounts owed are real and collectable, which directly affects the reliability of the company's balance sheet. Separate formal requirements apply to documenting a fixed asset stocktake.
The procedure for stocktaking of receivables involves a number of steps that must be carried out in line with the Accounting Act. The most important element of the process is confirming balances with business partners, which makes it possible to check whether the book balances match economic reality. The process requires proper preparation, appropriate documentation and a systematic approach to reconciling any differences.
Stocktaking of receivables must be carried out as at the last day of each financial year under Article 26 of the Accounting Act. For entities whose financial year is the calendar year, the balance sheet date is 31 December. The process may start no earlier than 3 months before the end of the financial year and must be completed by the 15th day of the following year (Article 26 section 3 point 1)
Deadlines for stocktaking of receivables
The Accounting Act sets out precisely the deadlines for stocktaking of receivables and liabilities. Under Article 3 section 1 point 10 of the Accounting Act, the balance sheet date is the date as at which the entity prepares its financial statements. For entities whose financial year is the calendar year, the balance sheet date is 31 December. Different rules govern fixed asset stocktaking deadlines.
The rules allow some flexibility in the timing of the stocktake. Entities may start the stocktake of receivables no earlier than 3 months before the end of the financial year and complete it by the 15th day of the following year. This means that for a financial year equal to the calendar year, the stocktake may start as early as 1 October and must be completed by 15 January of the following year at the latest.
The deadline and frequency of the stocktake are deemed to have been met if the stocktake started no earlier than 3 months before the end of the financial year and was completed by the 15th day of the following year. If the stocktake is carried out earlier, the balance as at the balance sheet date must be established by adding or deducting the changes that occurred between the confirmation date and the balance sheet date
It is important that the balance shown in the accounting books cannot be determined after the balance sheet date. This means that the book balance against which the confirmed balance is compared is established as at the balance sheet date at the latest (e.g. 31 December), not as at a date in the new year. If the stocktake was carried out before the balance sheet date, all increases and decreases in receivables between the balance confirmation date and the balance sheet date must be taken into account.
When planning the timing of the stocktake of receivables, allow time for:
- Preparing the balance confirmation documents
- Sending requests to business partners
- Waiting for replies from debtors
- Explaining any discrepancies
- Using alternative stocktaking methods for unconfirmed balances
Balance confirmation procedure for receivables
The basic method of stocktaking receivables is confirming balances with business partners. Under Article 26 section 1 point 2 of the Accounting Act, receivables, including loans granted, are inventoried by obtaining from business partners confirmations that the balance of these assets shown in the entity's accounting books is correct, and by explaining and settling any differences. This provision does not cover liabilities — the Act does not require them to be confirmed, and they are inventoried by verification (Article 26 section 1 point 3). We record settlements with business partners for clients whose full accounting we handle.
In practice, the balance confirmation procedure begins with the creditor preparing the relevant documents. The creditor initiates the reconciliation of the receivable balance — in practice it sends the debtor a balance confirmation letter in 2 copies. The debtor has no statutory obligation to reply; if it does reply, it confirms that the amount due presented by the creditor is correct or points out any discrepancies.
The balance confirmation letter should contain a list of unpaid receivables and a request for confirmation by returning 1 copy of the letter to the entity, signed by a person authorised by the business partner. If the debtor finds differences in the balance, it specifies them on the copy it returns to the entity
The balance confirmation process consists of the following stages:
- Preparing a list of receivables to be confirmed as at a given date
- Preparing a letter to the business partner in two copies
- Sending the documents to all debtors
- Waiting for replies within the set deadline
- Analysing the confirmations received and explaining discrepancies
- Using alternative stocktaking methods for unconfirmed balances
The balance is confirmed when the debtor adds the relevant note, signs the letter and returns it to the creditor. It is important that the balance confirmation covers not only the principal amount, but also interest, contractual penalties and court costs awarded that are recorded in the books.
Scope of balance confirmation for receivables
Confirmation of receivable balances covers much more than just the principal amount of the debt. The process confirms with the business partner the total amount due, made up of all elements of the debt accrued as at the reconciliation date.
The detailed scope of balance confirmation covers:
- The principal amount arising from the contracts concluded
- Contractual interest accrued under the terms of the contract
- Statutory interest arising from the law
- Interest for late payment
- Contractual penalties for failure to perform obligations
- Court costs awarded
Confirmation of receivable balances covers not only the principal amount, but also all accrued interest, contractual penalties and court costs awarded. All these elements should be accrued as at the reconciliation date and presented to the business partner for confirmation
Note that if balances are confirmed before the balance sheet date and additional interest accrues between the confirmation date and the balance sheet date, there is no obligation to confirm the balances again. This follows from the option of carrying out the stocktake earlier provided for in Article 26 section 3 point 1 of the Accounting Act.
The question of reconciling zero receivable balances needs special attention. The Act does not mention them directly, but in practice zero receivable balances are also reconciled if there was significant turnover with that business partner during the financial year, in terms of frequency or amounts. This means that even if nothing is owed at the balance sheet date but significant transactions took place during the year, it is worth confirming the balance.
Electronic balance confirmation
Modern technology makes it possible to confirm receivable balances electronically. There is nothing to prevent receivable balances from being confirmed electronically, for example by e-mail, provided certain requirements are met.
The Accounting Act does not specify the form of balance confirmation. In practice, the basic condition for using the electronic form is that the business partners agree on it — the parties should agree in advance that they will use electronic means of communication to reconcile mutual balances. In addition, the information sent should be properly authenticated to ensure it is reliable and that the sender can be identified.
Electronic confirmation of receivable balances is allowed — the Act does not require written form. It is worth agreeing this form of communication with the business partner in advance and making sure that the information sent is properly authenticated, which ensures its reliability and allows the sender to be verified
The advantages of electronic balance confirmation include:
- Speed of communication
- Automatic archiving of correspondence
- Easier management of the stocktaking process
- Savings on traditional postage costs
- The option to use an electronic signature
Remember, however, to maintain appropriate security measures when confirming balances electronically. The entity should ensure the integrity of the data sent, the confidentiality of the information and the ability to prove that a specific person authorised by the business partner confirmed a given balance.
Alternative methods of stocktaking receivables
Not all receivables can be inventoried by balance confirmation. The Accounting Act provides an alternative stocktaking method for receivables that, for justified reasons, cannot be inventoried by balance confirmation. Such receivables are inventoried by comparing their balance with the relevant source documents.
Under Article 26 section 1 point 3 of the Accounting Act, the following categories of receivables are inventoried by verification rather than balance confirmation:
| Category of receivables | Reason for exclusion | Stocktaking method |
|---|---|---|
| Public-law receivables | Specific nature of settlements with the state budget | Comparison with documents |
| Disputed and doubtful receivables | The business partner disputes the receivable or its payment is uncertain | Verification of documents |
| Receivables from persons not keeping accounting books | No accounting obligation | Analysis of source documents |
| Receivables from employees | Employees are persons not keeping accounting books | Comparison with documents (e.g. advance settlements) |
The Act requires public-law receivables, disputed and doubtful receivables and receivables from persons not keeping accounting books to be inventoried by verification rather than balance confirmation. Such receivables are inventoried by comparing the data in the accounting books with the relevant source documents and verifying their value
Receivables from persons not keeping accounting books include, among others, receivables from business partners who run a business but do not keep accounting books, and receivables from employees such as advances or loans granted. For these receivables, the stocktake consists of a detailed review of the source documents and a check that their value is real.
The alternative stocktaking process includes:
- Identifying receivables excluded from balance confirmation
- Collecting all source documents relating to these receivables
- Comparing the book balance with the documentation
- Verifying the value of the receivables
- Preparing documentation of the stocktake carried out
Dealing with an unconfirmed balance
The Accounting Act does not provide for tacit confirmation of a balance. This means you should not state in the balance confirmation request that failure to reply by the deadline given will be treated as confirmation of the receivable shown in the request.
If the entity does not receive a balance confirmation from the business partner by the set deadline, the balance has not been confirmed. In that case, the entity must take further steps to inventory the unconfirmed receivables.
A business partner's failure to reply to a balance confirmation request cannot be interpreted as tacit confirmation. If the entity does not receive a balance confirmation, it must carry out the stocktake using the alternative method of comparing the book data with source documents
If a business partner does not reply to the balance confirmation request, the entity should:
- Contact the business partner again to obtain confirmation
- Check the contact details and the way the request was delivered
- Document the attempts made to obtain balance confirmation
- Carry out the stocktake by comparison with source documents
- Prepare appropriate documentation of the stocktake carried out
If the entity decides that the balance cannot be confirmed for justified reasons, it inventories the unconfirmed balance by comparing the accounting book data with the relevant documents and verifying their value under Article 26 section 1 point 3 of the Accounting Act.
A trading company sent balance confirmation requests to 50 business partners. After the deadline it had received replies from 35 business partners, of whom 30 confirmed that the balances agreed and 5 pointed out discrepancies. For the remaining 15 business partners who did not reply, the company carried out the stocktake by comparison with source documents, checking invoices, debit notes and payment documents.
Recording stocktaking differences in the books
Entities keeping accounting books must bear in mind that, for receivables and liabilities, there are no stocktaking differences in the classic sense. This means that if balance reconciliation with business partners reveals differences between the amounts in the entity's accounting books and the amounts stated by the business partner, all discrepancies should be explained.
Explaining differences requires establishing their causes and how to settle them. The most common causes of discrepancies in receivable balances include:
- Differences in the timing of recording transactions
- Invoices in transit that the business partner has not yet received
- Payments in transit that have not yet been recorded
- Recording errors on either side
- Differences in the interpretation of contract terms
- Accrued interest or contractual penalties
For receivables and liabilities there are no stocktaking differences in the classic sense. All discrepancies found during balance reconciliation must be explained, their causes established and properly settled in the accounting books
Once the causes of the discrepancies have been explained and the method of settling them agreed, if errors are found in the accounting books of the financial year covered by the stocktake, appropriate correcting entries must be made in the books of the financial year in which the stocktake deadline fell (Article 27 section 2). These entries should be made before the books are closed and the financial statements are prepared.
Examples of correcting entries may include:
- Recording receivables that were not entered in the books
- Correcting incorrectly recorded amounts
- Accruing interest for late payment
- Making or reversing write-downs of receivables (Articles 35b and 35c)
- Valuing receivables in foreign currencies at the NBP average exchange rate on the balance sheet date (Article 30 section 1)
Documenting the stocktaking process
Proper documentation of the stocktake of receivables is a key element of the whole procedure. The entity should keep detailed documentation of all steps taken during the stocktake so that it can prove the process was carried out correctly.
The documentation of the stocktake of receivables should include:
- A list of the receivables inventoried
- Copies of the balance confirmation requests sent
- Balance confirmations received from business partners
- Documentation explaining discrepancies
- Reports on the alternative stocktaking carried out
- Correcting entries made as a result of the stocktake
The entity should keep detailed documentation of the whole stocktake of receivables, covering all requests sent, confirmations received, explanations of discrepancies and accounting corrections made. This documentation may be kept electronically, provided appropriate safeguards are in place
The documentation may be kept electronically, provided it is properly protected against unauthorised access and accidental loss of data. Remember also that stocktaking documentation must be kept for at least 5 years, counting from the beginning of the year following the financial year it concerns (Article 74 section 2 point 7 and section 3 of the Accounting Act).
Properly kept documentation of the stocktake of receivables makes it possible to:
- Prove that the process was carried out correctly
- Make inspections by supervisory authorities easier
- Ensure continuity when staff change
- Use the experience of previous years
- Improve stocktaking procedures
