Inventory of Receivables and Payables
Before drafting annual financial statements, all the companies, regardless of their ownership form, must hold inventory of assets and liabilities. An inventory of receivables and payables is a part of this process. Let’s considerhow to do it right.
INSERT: When an inventory is conducted, the provisions of the Regulation on inventory of assets and liabilities, as approved by the order of the Ministry of Finance No. 879 of 02.09.2014, must be applied (hereinafter“Regulation No. 879”).
Preparation for Inventory
Every inventory starts with an order issued by a company’s top manager, approving the members and the head of the inventory commission. Let us remind you that an inventory is carried out to ensure the accuracy of a company’s accounting and financial reporting data. During an inventory of assets and liabilities, their availability, condition, correspondence to recognition criteria and evaluation are inspected and supported by documents.
А comprehensive inventory is carried our before the preparation of annual financial statements. Certain timeframes are defined for various assets. Thus, the inventory of assets and liabilities, including without limitation receivables and payables, must start three months before the date of preparation of the annual balance sheet, that is from October. The inventory of special-purpose financing, settlements with the budget and deductions for mandatory state social insurance must start two months before the preparation of the annual balance sheet.
What accounts are subject to inventory
If receivables are available, the inventory of the following accounts (subaccounts) is necessary: 181 “Receivables for property under finance lease”; 183 “Other receivables”; 36 “Settlements with buyers and customers”; 37 “Settlements with various debtors”. This concerns both current and long-term receivables, where a probability of receiving economic benefits exists.
If accounts payable are available, the following accounts are subject to inventory: 50 “Long-term loans”; 53 “Long-term lease liabilities”; 55 “Other long-term liabilities”; 60 “Short-term loans”; 61 “Current portion of long-term liabilities”; 63 “Settlements with suppliers and contractors”; 68 “Other settlements”.
The inventory of the following accounts is carried out separately based on internal documents: 64 “Taxes and charges payable”; 65 “Insurance payable”; 66 “Payroll liabilities”; 67 “Payables to members”.
Inventory Procedure
The procedure of an inventory of receivables and payables is stipulated in item 7 of section ІІІ of Regulation No. 879. The inventory involves reconciliation of documents and records in accounting ledgers and verifying the amounts recorded in the respective accounts. The results are recorded in an inventory report.
Before starting an inventory of receivables, the accounts department must prepare the statements of analytical accounts on the debt of each debtor company in duplicate. One copy is filed to the inventory commission to confirm the actual debt, and the second copy is provided to the debtor company, which must either confirm the debt or state its objections. The objections are filed in writing, with copies of supporting documents. The account reconciliation report is the document used to confirm the amount of debt. It should be also executed in duplicate, a copy for each party.
We would like to note that such report may be in a free form, as an approved standard form of such report does not exist. However, the form of the report provided in annex 1 to the order issued jointly by the Ministry of Economy, Ministry of Finance, the State Statistics Committee No. 148/234/383 of 10.11.1998 is usually used. Based on the creditor’s decision, either a total amount of debt, or separate amounts for each agreement (shipping list) if several of them exist, may be specified in the reconciliation report. The report must be signed by two parties. If differences arose, they are specified in the report. Such differences should be resolved until the end of the reporting period, that is December 31.
The inventory of payables is carried out in a similar manner. However, in such a case, a company acts as a debtor of its counterparty with which it has accounts payable. Then, in order to confirm its debt, the debtor must obtain the statements of analytical accounts and approve the reconciliation reports on the basis thereof, or notify of the amounts that are not reconciled, providing the copies of source documents as evidence.
Document Formalizing Inventory Results
Based on the reconciliation reports received, the inventory commission draws up an inventory report. If debt amounts are reconciled, they are specified in that document. If the report with the debtor’s signature is not received, or the detected differences are not reconciled until the end of the reporting period, or such differences remain unresolved, the amount of debt reflected in the accounting records is specified. Based on similar documents, information on accounts payable is provided in the inventory report as well.
Note: during an inventory of receivables and payables it is not only checked whether the amounts are justified, in particular the amounts recorded on the receivables accounts (the accounts for settlements with customers, suppliers, contractors), promissory notes received and issued, loan funds received, credits (loans) granted, other receivables and payables, but also whether the limitation period is met.
The following information is specified in the inventory report: the titles of the subaccounts that were subject to inventory, the amounts of receivables and payables that were not reconciled, bad debt and accounts payable and receivable with expired limitation period.
A reference on accounts receivable and accounts payable with expired limitation period is attached to the inventory report, indicating the debtors’ and creditors’ names and addresses, the amounts, reasons, dates and grounds for the origination of debt (for budgetary institutions, letters to higher-level authorities regarding the allocation of funds for the repayment of such debt should be attached) (under sub-item 7.5, item 7 of section ІІІ of Regulation No. 879).
As in the case with the form of reconciliation report, the forms of inventory reports and other documents to be executed in the course of an inventory were approved by the order of the Ministry of Finance No. 572 of 17.06.2015 for budgetary institutions. Therefore, the use of such forms is not mandatory for business entities other than budgetary institutions. They may use them optionally or may develop their own forms. This will not constitute a violation of applicable law.
Formalizing write-off of debt with expired limitation period
As it was mentioned above, a report is drawn up as a result of inventory, where information on all receivables and payables is specified. The information on the debt with expired limitation period, which is planned to be written off, is formalized in a separate report.
Based on all the reports and source documents, the inventory commission draws up a report with the conclusions on the differences between the actual assets and liabilities available and the accounting data provided in reconciliation reports, as well as the proposals on resolving such differences (item 1, section IV of Regulation No. 879).
In order to write off the debt with expired limitation period, not only a report of the inventory commission approved by the company’s top manager is required. A separate order with the amount of debt and the reason for write-off is required as well. Based on such documents, the accounts department writes off the debt and also executes an accounting reference.
An inventory of special-purpose funds is carried out separately. In the course of such inventory it is checked whether the balance of funds is justified. This is done by means of matching the data on the receipt of special-purpose funds by the company and the use of such funds according to their intended purpose (sub-item 7.6, item 7, section ІІІ of Regulation No. 879).
Finally, we would like to remind you that the limitation period of 1095 days under general provisions was suspended for almost five years (from 12.03.2020. until 04.09.2025.) due to COVID-19 and the martial law in Ukraine. The law of Ukraine No. 4434-ІХ of 14.05. 2025 reinstated it from 04.09.2025. Therefore, when the amount of debt subject to write-off is calculated, the limitation period should be calculated correctly, considering the suspension.
Nataliia Shcherbak, accounting and tax consultant