Features of the organization of accounting of equity capital of enterprises of Ukraine and directions for its improvement

Abstract. The article deals with the theoretical and practical aspects of accounting of equity capital of enterprises, stressed the importance of its timeliness and reliability. Characterized structural elements of equity capital. Also highlighted the main problems of accounting of equity capital and suggested solutions.

Keywords: equity capital, structural elements, automation, revaluation, normative regulation, European integration.

Анотація. У статті розкрито теоретичні та практичні аспекти організації обліку власного капіталу підприємства, наголошено на важливості його своєчасності та достовірності. Охарактеризовано структурні елементи власного капіталу. Також висвітлено основні проблемні аспекти обліку власного капіталу та запропоновано шляхи їх вирішення.

Ключові слова: власний капітал, структурні елементи, автоматизація, переоцінка, нормативне регулювання, євроінтеграція.

Formulation of the problem. Equity capital is the basis for the establishment and development of the enterprise. In the process of functioning, it ensures the interests of the state, owners and personnel. Any organization conducting industrial or other commercial activities must have a fixed capital.

         Equity accounting is an information base to reflect such characteristics of the enterprise as the availability of funds, the creditworthiness of the enterprise, financial stability, solvency. Efficient use of equity capital, on one hand, helps maximize the equity return, on the other hand, helps not to lose financial sustainability and remain solvent. Therefore, the rational organization of equity accounting is a guarantee of obtaining reliable and necessary information about the capital of the enterprise.

         The analysis of recent studies and publications. The problems of accounting of formation and change of equity are studied in the works of many leading economists such as: M.D. Alekseenko, F.F. Butinets, S.F. Heads, gg Kiiretsev, MM Mosiuchuk, OI Pilipenko, I.R. Polishchuk, MS Pushkar, N. M. Tkachenko V.V. Sopko

         However, there are aspects that require detailed study and solution of existing problems.

         Presentation of the main material.The purpose of the study is to expound on the peculiarities of the equity capital accounting and determine the ways of its improvement on the basis of generalization of theoretical and evaluation of practical aspects of selected topics.

         Presentation of main material. Equity capital is one of the most significant and important elements of the company, for it is the basis and guarantee of the organization of different kinds of business ownership and organizational and legal forms. Any organization or enterprise conducting industrial or other commercial activities must have a fixed capital necessary for the conduct of its economic activity. It is the basis for the establishment and development of the enterprise.

         Mobilized by the founders of the enterprise from different sources of capital owned by them and owned by the enterprise as a result (by ownership or economic jurisdiction) as a legal entity, becomes the owner’s equity of the entity.

         According to Ukrainian Accounring Standards 1 “General Requirements to Financial Statements”, equity is the difference between assets and liabilities of an enterprise [8]. The legal basis for organizing documentary registration of equity capital is clearly regulated by the Laws of Ukraine, resolutions of the Cabinet of Ministers, orders of ministries, departments, and state tax administration.

         The proportion between capital and liabilities in different enterprises is not

the same. The greater the share of equity in the assets of the enterprise is, the higher its independence will be. Equity is the basis for the enterprise’s activities. It shows the degree of independence and the influence of its owners on the company.

In accordance with the current National Accounting Standards (Standard) 1 “General Requirements for Financial Statements”, equity includes the following structural elements:

• recorded (share) capital;
• capital in additional valuations;
• additional capital;
• reserve capital;
• unallocated profit (uncovered loss);
• unpaid capital;
• withdrawn capital [8].

Equity capital is the provision of such costs and payments, which are created at the expense of the enterprise and serve as a guarantee of covering some of its expenses:

• provision of personnel payments (creation of a reserve);
• other security (warranty repair, etc.);
• targeted financing.

         A common view is that the share of equity should be 50% or more. Only in this case, according to creditors, the company is more likely to repay its obligations at its own expense. Therefore, maintaining capital at this level is a priority of the enterprise.

         The main purpose of the organization of equity capital accounting is to support the system of financial management in decisions on its preservation and provision of effective control over the formation of sources of its own funds.

         The objects of organization of equity capital accounting are the initial stage, current and generalizing, and the objects of each stage are nomenclatures, carriers of nomenclature, their movement and maintenance [7].

         An important means of controlling the correct formation and use of the company’s equity is the continuous registration of data on all business transactions in the documents. However, most of the equity accounting operations do not have developed and approved forms of primary documentation.

         The primary documents of operations on accounting of own capital are accounting statements, which are compiled in a free form. General requirements for primary documents, accounting registers and financial statements are set forth in the Provisions on the Documentary Provision of Accounting Records [10].

         The organization of initial accounting begins with the study of the composition of the accounting nomenclature. Primary equity accounting characterizes the moments of the investment process (contributions, acquiring rights, etc.) or the choice of leaving the company, covering losses, etc.

         Current account means the processing, registration and recording of primary accounting data, ie information carriers, registers, grouping and regrouping them in order to obtain the necessary result information [7]. The main carriers of current equity accounting are the registers of analytical accounting of objects and synthetic accounting for accounts, sub-accounts and signs, generalization levels.

         The organization of the summary (generalizing) accounting begins with the identification of the composition of the accounting nomenclature, which should be reflected in the corresponding final account information. Accounting nomenclatures for generalizing the equity capital accounting are formed in accordance with the generalized data of the balance sheet of the reporting period, indicators of economic, financial, statistical and tax reporting. Other carriers of generalizing accounting are different accumulation data, tables, in which the summary data for the management needs and compilation of various forms of reporting are formed.

         Information about capital is provided in Form No. 1 “Balance” (Statement of financial position), Form No. 4 “Statement of Equity” and F-5 “Notes to the Annual Financial Statements”.

In order to summarize the information on the equity of the enterprise, the accounts of grade 4 “Equity and liabilities” are used in accounting, namely:

• 40 “Registered (share) capital”;
• 41 “Capital in surplus”;
• 42 “Additional capital”;
• 43 “Reserve capital”;
• 44 “Retained earnings (uncovered losses)”;
• 45 “Seized Capital”;
• 46 “Unpaid capital” [5];

         Under conditions of automated processing information each of these accounts and their subaccounts is recorded in electronic registers, analytical tables, analysis of calculations.

For accounting of own capital the Journal № 7 is used. For accounting of attracted capital in the form of loans – Journal number 2 is used.

         It is the right construction of analytical and synthetic accounting that provides reliable data on equity, through which the company can take effective managerial decisions.

However, at present, there are a number of problems and inaccuracies in accounting for equity, which need to be addressed.

         In particular, the use of automatical tools can almost completely solve the problem of accuracy and efficiency of information. Computer accounting programs increase the efficiency of keeping the enterprise’s equity capital accounting, increase its level of detail, and increase control over the reliability and accuracy of accounting information at all stages of its processing.

         However, it should be noted that the problem of capital add-ons remains rather complicated because asset revaluation is a complex and multilevel process which complexity is in the fact that it requires rather time-consuming calculations at all stages of its implementation: ranging from the reasonableness of the decision to hold revaluation to determination of its final results. An important point is automation of revaluation calculations, which can be done using even the Microsoft Excel program. However, Microsoft EXCEL itself is still not good enough for proper accounting at the enterprises [1].
         Regarding the consideration of equity through the prism of International Accounting Standards, there is no special IFRS (International Financial Reporting Standards) that deals with issues of accounting and reporting in equity transactions, but some issues on this topic are dealt with in Interpretations issued by the International Financial Interpretation Committee reporting – IFIC 17 “Payments of non-cash assets to owners”.

         According to the IFRS, the equity of an enterprise should be grouped and, according to domestic standards, detailed, allowing it to accurately reflect equity components in the reporting.

         The composition of financial statements for Ukrainian Accounting Standards 1 “General requirements for financial statements” is almost entirely consistent with the structure of financial statements in accordance with IAS 1 “Presentation of Financial Statements” [6]. However, given that IAS 1 does not define well-defined forms of financial reporting and, for the purpose of compiling them, the companies use the forms defined by the Ukrainian Accounting Standards 1, there are some contradictions.
         In our opinion, in the balance sheet (Financial Statement Report), it is inappropriate to show contributions to the unregistered share capital as part of the registered (share) capital, since in case of refusal to register it, the contributions will be returned to the founders of the enterprise without the consent of the creditors. We believe that for the purpose of European integration and improvement of cooperation with foreign countries, it is necessary to implement the transition to the International Financial Reporting Standards at the state level or to harmonize national standards, which will facilitate the work of accountants of enterprises and make domestic enterprises more attractive to foreign investors.

         In addition, in the context of increasing European integration and transformation of market processes in the Ukrainian economy, the use of foreign experience, in particular in accounting for the company’s own capital, is becoming increasingly relevant.

         In Germany, companies are prone to long-term financing (external through bank loans, domestic through pension schemes). In recent years, the average German share of own funds in the total assets has not exceeded 20%.

         In the UK, the Czech Republic, there are no accounts designed to account for additional capital, due to the level of economic development of countries.

In the UK, as in most developed Western countries, such organizational and legal forms of enterprises prevail as corporations and partnerships. This indicates the predominance of the share of investments in equity capital (therefore, equity is considered as borrowed by the firm and should be repaid in the future).

         In the United States and Japan, equity and affiliate capital is reflected within the actual paid, due to the fact that the debt item of shareholders (founders) is absent. In case of insufficient payment of shares, contingent liabilities for collected cash assets are disclosed in explanations.
         There remains an unresolved issue regarding the methodology for conducting an analysis of operations with equity and assessing the financial condition of an enterprise, since in each country there are different components of equity, there are different approaches to the application and normative value of the coefficients of autonomy, financial dependence, etc. This is due to the peculiarities of regulatory accounting regulation at the national and international level. From this perspective, it is necessary to improve the methodology for conducting an analysis of the financial condition of the company, taking into account the experience of foreign countries and the achievements of Ukrainian scientists in this field. This will provide analysts and owners with information about the capital structure of the enterprise and will allow you to predict whether the company will have a profit in the next reporting period and determine the reserves for increasing the company’s profit.

         Conclusions. Hence, equity capital is one of the most important and important elements of an enterprise, as it is the basis and guarantee of the organization of business of various forms of ownership and organizational and legal forms. It is the basis for the establishment and development of the enterprise. In particular, in order to improve overall accounting and equity accounting, it is necessary to make changes not only at the level of the entity but also at the state level to move to International Financial Reporting Standards or to harmonize national standards, taking into account that IAS 1 requires disclosure of a much wider circle information that is provided for by the requirements of Ukrainian Accounting Standards 1.

         Also, in order to improve the domestic accounting of equity capital, it is advisable to take into account the foreign experience of the enterprise, while combining it with the assets of Ukrainian scientists in this field. This will improve the quality of equity accounting, lead to improved quality management at the enterprise and provide users with financial reporting additional information for the adoption, in relation to this enterprise, more rational financial decisions.

References:

1. Bugai O. Peculiarities of using modern information technologies in accounting of own capital of the enterprise / O. Bugay // Accounting, analysis and audit: evolution, current state and prospects of development: a collection of materials of the All-Ukrainian student’s scientific-practical conference. Kyiv, December 9, 2014 – K .: KNEU, 2014. – P. 343-345.

2. Butinets F.F. Accounting in foreign countries / Ф.Ф. Butinets // L.L. Goretzka – Zhytomyr: PE “Ruta”, 2004. – 544 p.

3. Volkova I. A. Financial accounting – 2: teaching. manual / I. A. Volkova – K .: Center for Educational Literature, 2009. – 224 p.

4. Dergachova V.V. Accounting in foreign countries [Text]: taught. manual / V.V Dergacheva, N.E. Skorobogatova L.M. – K .: NTUU “KPI”, 2011. – 257 p .: – The bibliographer: p. 255 – 257.

5. Instruction on the application of the Account of the accounts of assets, capital, liabilities and business operations of enterprises and organizations: the order of the Ministry of Finance of Ukraine dated November 30, 1999, № 291. URL: http://zakon3.rada.gov.ua/laws/show/z0893-99  

6. “Presentation of Financial Statements”: International Accounting Standard 1. URL: http://zakon.rada.gov.ua/laws/show/929_013

7. Muzychenko T.O. Organization of the accounting process of equity components. Effective economy. 2015. № 6. URL: http://www.economy.nayka.com.ua/?op=1&z=4158  

8. “General Requirements for Financial Statements”: National Accounting Standard (Standard) 1. URL: http://zakon.rada.gov.ua/laws/show/z0336-13

9. On Business Associations: Law of Ukraine dated 19.09.1991 № 1576-XII. URL: http://zakon.rada.gov.ua/laws/show/1576-12  

10. On Approval of Methodical Recommendations for filling in the forms of financial reporting: Order of the Ministry of Finance of Ukraine dated March 28, 2013, No. 433, as amended and supplemented. URL: http://zakon.rada.gov.ua/rada/show/v0433201-13/conv

11. Sadovskaya IB Accounting : tutor. manual. / I. B. Sadovska, T. B. Bozhidarnik, K. Ye. Nagirska. – K.: “Center for Educational Literature”, 2013. – 688 p.

Opportunities to improve the process of managing the receivables of the enterprise

Abstract. The article deals with tasks, methods and tools of management the receivables of the enterprise. Highlighted the typical problems of process of management the receivables and developed the ways for improve.

Keywords: receivables, accounts receivable management, normative regulation, reserve of doubtful debts, bad receivables.

Анотація. У статті розкрито завдання, методи та інструменти управління дебіторською заборгованістю підприємства. Висвітлено типові проблеми процесу управління та розроблено шляхи вдосконалення.

Ключові слова: дебіторська заборгованість підприємства, управління дебіторською заборгованістю, нормативне регулювання, резерв сумнівних боргів, безнадійна дебіторська заборгованість.

Formulation of the problem. In the modern world, under the conditions of constant economic development and expansion of the activities of economic entities, accounts receivable is paid considerable attention, since it has a significant impact on the turnover of capital and on the financial position of the enterprise in general. However, the improvement of accounting alone can not solve the problem of non-payment. Enterprises, regardless of their form of ownership and the specifics of functioning, must first of all control and improve the process of management of accounts receivable, which is part of the overall management system.
The analysis of recent studies and publications. The issues both of regulating the organization of accounting and improving the management of accounts receivable were studied by the following domestic scientists: I.O. Blank, M.D. Bilyk, F.F. Butinets, A.D. Butko, S.F. Golov, L.V. Gorodanskaya, R.O. Kostyrko, V.M. Kostyuchenko and foreign scientists, namely: Zvi Bodi, D.Norton, R.Merton. R. Ka plan. However, most of them still emphasize the need for the further study of this issue. The purpose of the study is to identify possible ways on how to improve the process of managing receivables from the enterprise on the basis of the generalization of theoretical aspects as well as evaluation of the practical aspects of the outlined topic.
         Presentation of the main material. An integral part of the financial and economic activities of the enterprise is the conducting calculations with counterparties. Quite often, after shipment of manufactured products, enterprises do not immediately receive payment for it. Thus, the buyer is lending. It can be argued that from the moment of shipment of products until receipt of payment, the company’s funds are in the form of accounts receivable.

         The provision (standard) of accounting 10 “Accounts Receivable” determines the accounting methodology, the basic notions and the procedure for disclosing information about the receivables of an enterprise in the financial statements.

According to Ukrainian Accounting standards 10, receivables of an enterprise are the amount of debtors’ debts on a certain date. Debtors are legal entities and individuals who owed a company a certain amount of money, its equivalent or other assets [6].
         Enterprises need to find ways to reduce receivables, for the profit of the enterprise, payment of wages, the possibility of repayment of accounts payable, the purchase of raw materials and materials for further production, the possibility of expanding production depend on it.
         However, it can not be stated that receivables is only a negative phenomenon because there are the pros as well. Provision of goods with a installment allows you to expand the markets, since the desire to have significant volumes of sales forces executives to agree to provide commercial loans, price discounts , to create more favorable conditions for buyers and customers for the purchase of products.

         At this stage, there is a need to manage accounts receivable.
         Debt management is an integrated process of planning, organizing, coordinating, motivating and controlling the status of receivables, which is necessary to achieve the objectives of the enterprise [4]. It is also an essential element of the system of accounting and management accounting. The correct organization of the management process depends on the financial condition of the enterprise and its liquidity.
         The need to manage accounts receivable is due to:

– receipt of payments from debtors is one of the main sources of receipt of funds from the operating activities of the enterprise;

– investment of real costs or benefits from accepted credit decisions can be used as a tool for expanding sales.

         The main tasks of managing receivables are:

-Support sales growth by providing a commercial loan and thereby increasing profits;

-increasing competitiveness by means of a delay in payment; 

– Defining the level of risk of buyer insolvency;

-Calculation of the planned reserve of doubtful debts;

-Providing recommendations for dealing with actual or potentially insolvent buyers.

         The main function on which the process of managing receivables is based is strict control over the financial flows of the enterprise.

Today there are a lot of methods of managing receivables.

         Companies introduce a flexible system of discounts for debtors. They practice spontaneous financing. It means providing discounts in response to shorter payment terms. The methods of “outsourcing” are becoming increasingly popular, they involve attraction of third parties. The enterprise transfers the authority to work with indebtedness to another organization. Such organizations are factoring companies and banks [5].
         Typical problems encountered by an enterprise in managing and accounting for receivables of an enterprise:

-The evaluation of creditworthiness of buyers and the efficiency of commercial lending is not carried out;

-Insufficient professionalism of financial managers;

-Low solvency of buyers;

-Unregulated work with overdue accounts receivable;

-There is no reliable information on the maturity of obligations by the companies-debtors; -Lack of data on the growth of costs associated with an increase in the amount of receivables and the time of its turnover;
         Receivable management of the enterprise requires from each enterprise the withdrawal of the natural level of accounts receivable (in days) for each type of goods (works, services), based on their own experience and specific business conditions. The natural level of receivables is calculated on the grounds that it should not affect the normal functioning of the enterprise. To be natural in that the lower level is not possible, and the larger one is economically impractical [2]. It is also necessary to analyze the causes of deviations from the natural level, in order to avoid deviations in future periods.

         For companies that have a large volume of receivables turnover, a special financial management policy should be developed. Financial policy is a set of financial instruments the successful use of which ensures financial stability. An important tool in the management of accounts receivable is to provide discounts to customers. Discounts are provided in the following cases:

1. prepayment or quick payment for products (used by the enterprise with a lack of funds);
2. the purchase of large volumes of products;
3. 3) purchase of products of lower quality;

4) in order to maintain business relations with old customers or with those that are “valuable” for the enterprise [3].

         Fast payment for products frees up money that can be re-invested in production, that is, increasing and profitability of the enterprise. However, the size of discounts should not exceed the benefits of fast or prepayment. In this regard, in the process of forming a credit policy, it is advisable to develop a scale of discounts in accordance with the terms of the fast payment and the scale of fines for late payments [2].
         In Ukraine, the necessity of adapting the requirements of international accounting standards to domestic ones in order to improve the accounting system is determined. The experience of other countries is also advisable to use in managing the receivables of the enterprise. In foreign countries there is no separate standard for adjusting receivables. Some aspects are defined in: 

–  IASB “Presentation of Financial Statements”; 

–  IASB “Financial Instruments: Disclosure and Presentation”; 

–  IASB “Financial Instruments: Recognition and Measurement”.
         In particular, IASB 32 accounts receivable is treated as a financial asset, but the specific definition of this concept is not given by international standards [7].

The issue is that today many enterprises in Ukraine do not create a reserve of doubtful debts, arguing that part of the funds accumulated in the form of a reserve does not turn.

         The reserve of doubtful debts is, as a rule, a percentage of the amount of sales on a loan or receivable at the end of the reporting period and is created at the enterprise, first, for the accurate presentation of receivables in the balance, because current receivables are reflected in the balance in the amount of the difference between the outstanding debt and the reserve of doubtful debts. Secondly, at the expense of the reserve bad debts are written off.
         Bad receivables are current receivables that are sure not to be returned by the debtor or which is beyond the limitation period [6]. It is worth pointing out that in foreign literature, a receivable that is likely to never be paid is hopeless. The two most commonly used methods for accounting for bad debts in most countries are the direct write-off method and the provisioning method.
         The direct debit method has certain disadvantages and applies only in cases where the bad debt is insignificant in size. The method of accrual of reserves allows a calculation of bad debts in each reporting period, even if it is not known at the relevant time, which particular accounts will not be paid and it is impossible to determine the specific size of bad debt.
         In the United States, in case at the date of the financial statements, the entity does not see the ability to collect the full amount of accounts prior to receipt, there is a contingency under the “Contingency Account”.

         In accordance with the General Principles of Accounting in the United States, two methods are used in calculating the questionable receivables of an enterprise:
-Method of the percentage of net realizations (estimate on the basis of total sales), based on the assumption that the share of proceeds of this year will not be received;

-Method of accounting for accounts on terms of payment (approach in terms of balance sheet), which assumes that part of the balance of accounts receivable will not be paid.
         In Italy it is allowed to annually assign to the reserve of doubtful debts 0.5% of the total amount of accounts receivable, and when the amount of the reserve is equal to 5%, its further increase is prohibited.

In Estonia, the amount of doubtful debt is written off for costs, irrespective of whether the collection measures applied to it or not. The difference in Estonian accounting from Ukrainian is that bad debts that were previously not transferred to expenses are written off from the balance sheet without displaying the amount of bad debt on the off-balance sheet account.
         In most countries of the Anglo-American system, besides the reserve for doubtful debts, companies can create other types of reserves, in particular, a provision for covering returns of goods and discounts. When managing receivables, it is advisable for an enterprise to use an irrevocable letter of credit, which is an effective mechanism and is often used in the United States and European countries. Debt write-offs can be carried out not only in the event that it is recognized as hopeless [1].

         The main recommendations for improving the process of managing receivables of the enterprise may be as follows:

1) determination of the natural level of accounts receivable and analysis of the causes of deviations;

2) providing discounts to customers;

3) creating a reserve of doubtful debts;

4) control over the ratio of accounts receivable and payable;

5) finding ways to increase the number of customers in order to reduce the risk of non-payment;

6) control over the state of settlement of overdue debts. In the context of inflation, any deferral of payment leads to the fact that the company actually receives only a fraction of the cost of the work performed. It is therefore necessary to extend the system of advance payments;

7) development of a special financial policy for the management of accounts receivable;

8) timely detection of inadmissible types of accounts receivable, which include, in particular, overdue debts of buyers over three months.
         Conclusions. In order to make timely and rational decisions on enterprise management it is necessary to have up-to-date and qualitative information on the state of settlements with debtors, which is formed on the basis of accounting data and registers of the corresponding entity. Debt management is an important process that is needed to achieve the goals of the enterprise and needs constant improvement.

A well-organized process of managing receivables will ensure that a shortage of funds and, as a result, a delay in payables, a lack of inventories, an increase in the need for loan capital, a decrease in the real amount of receivables due to inflationary processes, which in turn negatively affects solvency, liquidity and business activity of the enterprise are avoided.

References:

1. Belokoz O. Differences between domestic and international approaches to the assessment of trade receivables / O. Belokoz / / Galician Economic Journal. – 2010. – No. 3. – P. 197-201

2. Kylynitskaya Ye.V. Structuring of the process of management of receivables of enterprises / E.V. Kilnitsky // Bulletin of the NTU “KhPI”. – 2013. – No. 20 (993). – P. 141-145.

3. Koblyanskaya O.I. Financial Accounting: Teaching manual / Koblians’ka O.I. – K.: Knowledge, 2004. – 473 p. – (Kyiv National Taras Shevchenko University).

4. Kudatska T.S. Features of management of receivables of the enterprise in the conditions of a market economy / T.S. Kudatska // URL:http://www.rusnauka.com/16_ADEN_2011/Economics/7_88089.doc.htm

5. Livoshko T.V. Ways to improve the management of accounts receivable // URL: http://www.zgia.zp.ua/gazeta/evzdia_7_103.pdf

6. Regulation (standard) of accounting 10 “Accounts Receivable” – URL: https://zakon.rada.gov.ua/laws/show/z0725-99

7. Adamovskaya V.S, Sidorova O.I. Improving the accounting of long-term receivables due to the current economic situation / V.S Adamovska, OI Sidorova // Scientific Bulletin of Uzhgorod National University. Series: International Economic Relations and World Economy. – 2016. – public. 6 (1). – P. 6-9.