Comparative analysis of the debtor  
and creditor debts of the enterprise

Economic science/Financial Relations

Kapanova Sholpan Amanzholovna

senior instructor of the “Chair of Finances”of Kyzylorda State Univercity after Korkyt Ata, Kazakhstan

Comparative analysis of the debtor

and creditor debts of the enterprise

The debtor debts are the debts of the private persons and the juridical persons for the enterprise for the goods and services the advanced money they have taken from it. The private and juridical persons who owe debts for the enterprise are called the debtors. The debts are divided into two due to the time of repayment: poste restante and long-term. The calculation of these debts are held in the corresponding accounts of the such department (1, pp 108-112).

The debts which are taken in a year after the account are considered to be as current assets. They are as following:

· An advanced payment paid for the acquisition of the current assets;

· Debts which are to be taken by passed accounts;

· Debts which are to be taken by the bills of exchange;

· The debtor debts, appeared on the base of various operations between the major establishment and its subsidiaries;

· Debtor debts of the officials of the establishment;

· Other sorts of debts.

The sum which is mentioned in the item of got bills of exchange in the

balance of enterprise is the debt of private persons or juridical persons by bills of exchange. The debts poste restante with its possession and legal rights are considered to be assets. The conclusion is as following: the debtor debt is a future economic efficiency which is covered in assets due to its possession and legal rights.

The debtor debts circulation is referred to the sort of indexes characterizing a financial standing of the enterprise, i.e. the quantity of days between the debtor debts calculation term and its term of return. The debtor debts of establishment are identified in case if its income is recognized. Debtor debts are calculated by the remainder sum excepting discounts and returned goods price from the price of sold products and goods. The debtor debts which are not repaired for more than a year are considered to be “long-term debtor debts”. An income of per cents due to the term of debtor debts appearance and its expiration term difference is often not taken into account. Enterprises give discounts to the customers after their goods sale. The main reason of enterprise’s making such a step is to increase a volume of its goods for sale by interesting customers in. Also the use of price discounts influences a reduction of doubtful debts sum. The main thing in calculation of debtor debts is an identification of terms of sale, i.e. recognition of sale term of goods loaded to the customers.

The debtor debt is a payment obligation of a customer or a buyer before the managing subject for the sold good (work, service). It is divided into two as current and non-current. It is divided into commercial and non-commercial in calculation.

The debtor debts are divided into three groups: poste restant bills, received bills of exchange and others.

The poste restante bills are requirements for the non-financial assets of subjects and for the monetary means, goods and service. The debtor debts are divided into current and long-term.

The following requirements are found as doubtful due to the Tax Code of the Republic of Kazakhstan: requirements not satisfied during three years since a moment of its appearance as a result of goods. Sale, work’s fulfillment, service for the juridical and private businessmen-residents of the Kazakhstan Republic, also for the juridical non-residents, acting via an permanent enterprise in the Kazakhstan Republic; also requirements, not satisfied to the recognition of the debtor tax-payer as a bankrupt according with the laws of the Kazakhstan Republic and appeared by the sold goods, fulfillment works and services.

A participating capital is also used together with own capital during the enterprise’s management activity. This participating capital is called obligations in accounting. If any industrial society is obliged before a constructor for the product production, so the commercial enterprises can be a debtor before the enterprise which serves them. Join stock company may have obligations before its workers or employees for their work or also it may have debts in the form of taxes for budget. Nowadays there are plenty of enterprises that get debts, credits from the banks, out-of-bank enterprises, from abroad and revive their works, but also there are enterprises which take too much obligations and are being closed and sold in auctions because of no having possibilities to return them. These above-mentioned obligations are shown on the right side in the fourth and fifth parts of the accountant balance. It means that an enterprise has actual problems in any sphere; obligation is a debt of subject from the last period story. The economic efficiency of this regulation of debt brings to the flow of much money. A sum of obligation is measured as a current flow of the future total financial payments price. The regulation of obligations is done by these methods:

· Payment by monetary means;

· Assets delivery;

· Offers of service;

· Substitution of obligation with another obligation;

· Transition of obligation into a capital.

Obligations are divided into current and long-term. Such kinds of articles must be opened while showing obligations with the obligations obligatory to be paid by creditors requirements and a part of long-term obligations to be repaid in a year after the calculation day:

· Short-term credits or overdraft;

· Debts for taxes;

· Dividends to be paid;

· Debts for the subsidiaries;

· Debts for officials of the joint stock company;

· Other creditor debts.

Conditions of debtor and creditor debts influence much the financial condition of the enterprises, their volume and quality. Such things are demanded to increase the financial standing of enterprise:

1. Control of debtor and creditor debts correlation. Extra increase of debtor debts influences the enterprise financial stability and requires attraction of extra financing sources;

2. Control of the expired debts calculation stories.

Analysis of the debtor and creditor debts is done on the base of inner calculation data, accounting balance and its enclosures. It is necessary to study such kind of increase of debtor debts and the reason of explanation of this article and to estimate the future of returning debts and to find out doubtful debts if there is any in it. Despite of increase of goods and material values of low passable ness, the great amount of doubtful parts of debtor debts leads to circulation finances turnover weakening and it influences negatively the financial standing of an enterprise.

Despite of increase of property and current assets mobility the enterprise authority must estimate the validity of changes in enterprise and its reasons and also it must pay attention to the debtor debts analysis which is one of the important indexes in total sum of enterprise current assets.

It is necessary to point out the exact existence of debtor debt does not influence the financial standing of enterprise, but its volume, movement, i.e. a reason of its appearance. Appearance of the debtor debt is an objective process in setting accounts system by money transaction of management activity. We can not say that the debtor debt always appear as a result of accounts order violation and always deteriorates a financial condition. That is why we can not consider it to be as a private finance going out of circulation, because a part of it is an object of bank crediting and it does not influence the payment solvency of enterprise in any way.

The debtor debts of enterprise are divided into two as stable and unrepaid. Debts for goods which had been loaded by the payment term documents the date of which was expired are called unrepaid debtor debts. An unrepaid debtor debts shows illegal distortion of circulation documents and finance order’s distortion. In connection with it an analyst must figure out unrepaid debtor debt on the base of its research.

It is necessary to estimate the debtor debt by its real price after being totally recognized with its content and structure. Because the debtor debt might have not been repaid totally at once. Its return ability is figured out on the base of last experience, and also of current cases. The meaning of accounting risk is in following: the last period experience may not coincide with future loss or the current cases may not be taken into consideration totally. As a result the loss may be noticeable. An analyst must know how to figure out probability of returning of the debtor debt and must know correctness and accuracy of its preparation.

It is necessary to take into consideration a concrete situation, for instance a noticed increase of direction of non-returnable per cent. That is why, it is necessary to investigate the following:

· How many per cents of non-returnable debtor debts accompanies the share of one or more main debt levers;

· Does it influence the enterprise’s financial standing if one of the main debt levers doesn’t pay it’s debt?;

· How are the debtor debts divided by the formation term?;

· It is necessary to figure out if there are any discounts for the benefit of customers.

It is important to investigate the passableness and quality indexes of the debtor debts. It is clear by practice, the longer the debtor debt term, the lower its probability of returning. It is necessary to group them by terms of appearance in order to characterize the debtor debts utmost term.

One can see the share weights of debtor debts in the current assets content through the main analysis of the partnership (Table1). The mentioned data show a total positive dynamics of the enterprise assets. The investigation of them from the point of particular elements gives a possibility to come to the next conclusions. As we see by the table 1, the changed sum of general circulation assets made up 337020 thousands tenges or 205,5%.The debtor debt in the content of circulation assets increased to 514,4%, on the contrary, the goods and material funds and other short-term assets reduced to 5,77% and 377,63%. This coefficient indicates a share of ready-for-payment finances in total sum of finances directed to compensate current obligations.

Table1

Analysis of the circulation means structure and dynamics

Indexes	Absolute meaning		Share weight		Changes		Changes by structure,%
Indexes	2006	2007	2006	2007	sum	%	Changes by structure,%
Goods and material funds, total	59729	56285	32,57	10,04	-3444	-5,77	-22,53
Short-term debtor debts, total	79496	488215	43,35	87,12	408719	514,14	43,77
Other short-term assets	-2951	-14095	-1,61	-2,52	-11144	-377,63	-0,91
Monetary means	44160	30001	24,08	5,35	-14159	-32,06	-18,73
Total	183385	560405	100,0	100,0	377020	205,59	0,00
Sources: Accounting balances of LLP “ZhanRos-2” for 2006-2007

This situation requires a profounded analysis of the content and structure of the following: if there were any material values which had been spare or left and which were of low passableness due to the demand absence or limited demand, also ready products, out-of-norm raw material funds, materials and unfinished manufactures of such criteria.

It is necessary to investigate what the reason was of such increase of the debtor debts and why it was necessary to explain this article and also to figure out doubtful debts if there was any to estimate the future of debts repayment. Despite of increase of goods and material values with low passableness, the debtor debt, especially, a doubtful part’s being of great deal leads to weakening of circulation means turnover and influences negatively the financial standing of enterprise.

In such a way, despite of property and current assets mobility increase, an enterprise authority must estimate changes validity in its structure and pay a great attention to analysis of debtor debt which is considered to be one of the important indexes in enterprise current assets total sum.

A share of monetary is reduced by data given in the table 1 (if its share was 24,08 per cents in 2006, then it reduced to 5,35 per cents in 2007). In exchange a volume of the debtor debts comprises more than a half of all the circulation means, and it influences negatively the management of the partnership and it is impossible to continue its work without returning a half of debt. We should give a more profounded analysis to such an increase of debtor debts.

Table 2

Analysis of the debtor debts content and structure

Indexes	Monetary means								Increasing degree of remainders
	2006		received		closed		2007
	sum	%	sum	%	sum	%	sum	%
1. Debtor debts, total	79496	100	1425035	100	1016316	100	488215	100	614,1
1.1 Short-term	79496	100	1425035	100	1016316	100	488215	100	614,1

a) in it: expired with terms of more than 3 months	19373	24,37	306098	21,4	310236	30,53	15235	8,09	78,6
1.2 Long-term	0	0	0	0	0	0	0	0	0
Source: Accounting balances of LLP “ZhanRos-2” for 2006-2007

The debtor debts increased to 614, 14 per cents in a calculation year (Table2). It has no long-term types, just short-term types. From the short-term debtor debts those which term expired more than 3 months made up 24, 37 per cents in 2006, and 8,09 per cents in 2007. Here we can notice a reduction of debts with expired terms in 2007 and a volume of short-term debts with expired terms reduced to 21,4 per cents and influenced the enterprise positively.

We will analyze the debtor debts turnover using these above-mentioned cases, it made up 10,33 circulations in 2006, 6,65 circulations in 2007 (Table 3), average debtor debts increased to 285331 thousands tenges, if closing period of this year indicated 35 days, then it lengthened till 87 days (52 days). If a share weight of the debtor debts made up more than a half of current assets in 2006 and it increased to 87,11 per cents in 2007 (approximately increased twice). A share weight of doubtful part of debtor debts made up 24, 37 per cents in 2005, 3,12 per cents in 2006, and it had given a good result in an accounting year.

Table 3

Turnover indexes of debtor debts

№	Indexes	Formula	Meaning of 2006	Meaning of 2007
1	Turnover of the debtor debts (Tdd)	Tdd= SI/ADD SI – sales income, ADD – average debtor debts	10,33 circulations	6,65 circulations
2	Average debtor debts (ADD)	ADD = (DDN.P. + DDK.P.) / 2	83493 thous.tenges	285331 thous.tenges
3	Periods of closing of debtor debts (PDD)	PDD = 360 / TDD	34,84 days	54,14 days
4	A share weight of debtor debts in current assets level	KDD = DD * 100/TA	43,35%	87,11%
5	A share weight of doubtful debts (KDDD)	KDDD = DCC * 100 / DD	24,37%	3,12%
Sources: Accounting balances of LLP “ZhanRos-2” for 2005-2007

While making an analysis of the debtor debts we have seen that a partnership is coming across problems which have not been solved yet. w\We can give several descriptions for level of the debtor debts regulation:

· a presence of constant control during a settlement of accounts especially with the customers whose debts term has been expired;

· appointment of definite terms debtors;

· to try to increase customers quantity;

· control of the debtors and creditors debts correlation coincidence.

It is necessary to make an analysis of creditor debts after making analysis of debtor debts. It is defined by finding out sources for closing circulation means necessity of a partnership.

The circulations are calculated at the end of a month and the remainders are figured out by accounts. An analytical table was done to analyze creditor debts (Table 4).

Table 4

Analysis of the creditor debts structure

Indexes	Monetary means								Level of increasing of remainder, %
	2006		received		closed		2007
	sum	%	sum	%	sum	%	sum	%
1. Creditor debts, total	431681	100	971762	100	836287	100	567156	100	131,3
1.1 Short-term	431681	100	971762	100	836287	100	567156	100	131,3
a) including with expired dates	182342	42,2	614640	63,2	488643	58,4	308339	54,3	169,1
including more than 3 months	182342	42,2	614640	63,2	488643	58,4	308339	54,3	169,1
1.2 Long-term	0	0	0	0	0	0	0	0	0
Source: Accounting balances of LLP “ZhanRos-2” for 2005-2007

By data of table 4, the creditor debts raised to 31, 38 per cents in 2007. It totally consists of short-term creditor debts. A structure of the credit debts of 2005, thus a debt with an expired term of 3 months made up 42, 24 per cents, it increased to 54, 37 per cents or to 12, 13 per cents. A growth tempo of creditor debts with an expired term made up 169, 10 per cents. The indexes by short-term creditor debts and debts with expired term are indicated by negative factors.

Table 5

Turnover indexes of the creditor debts

№	Indexes	Formulas	Meaning of 2006	Meaning of 2007
1	Turnover of the creditor debts (Tcd)	Tcd= SI/ACD SI – sales income, ACD – average creditor debts	3,7 circulations	2,48 circulations
2	Average creditor debts (ACD)	ACD = (CDN.P. + CDK.P.) / 2	235265 thous.tenges	764187 thous.tenges
3	Repayment terms of the creditor debts (CD)	Tcd = 360 / Rcd	97,3 days	145,16 days
Sources: Accounting balances of LLP “ZhanRos-2” for 2005-2007

Having looked through turnover of the creditor debts we figured out the following: it made up 3,7 circulations in 2006, 2,48 circulations in 2007, and also an average creditor debt made up 235265 thousand tenges in 2006, and 764187 thousand tenges in 2007 and repayment term of the creditor debts indicated 97,3 and 145,16 days respectively.

We have composed tables 6 and 7 for comparative analysis of the creditor and debtor of the limited liability partnership “ZhanRos-2”.

Table 6

Description of the debtor and creditor debts

Items of indexes	2006	2007	Percentage, %
Debtor debts, total	79496	488215	614.14
Including with inspired terms	19373	15235	-21.36
Creditor debts, total	431681	567156	31.38
Including with inspired terms	182342	308339	69.10
Sources: Accounting balances of LLP “ZhanRos-2” for 2005-2007

The debtor debts volume of an accounting year increased to 614,14 per cents compared with 2006, and, on the contrary, the debtor debts with expired terms reduced till 21,36 per cents. The following was indicated during comparison of the debtor debts and creditor debts:

· a sum of the creditor debts are much more than a sum of the debtor debts of the partnership, but a level of their increase is low;

· the faster the circulation speed of the debtor debts, the more the monetary flow and it lowers the creditor debts.

Table 7

A comparative analysis of the debtor and creditor debts

thousand tenges

Items of indexes	Creditor debts	Debtor debts
1. Increase tempo	131.38	614.14
2. Turnover, circulation	2.48	6.65
3. Turnover, days	145.16	54.14
Sources: Accounting balances of LLP “ZhanRos-2” for 2005-2007

The debtor debts are the debts of the private persons and of the juridical persons for the enterprise for the goods and services, and the advanced money they have taken from it. The private and the juridical persons who owe debts for this enterprise are called the debtors. The debts are divided into two due to the time of repayment: poste restante and long-term. The calculation of these debts is held in the corresponding accounts of the such department.

The debtor debts which are taken in a year after the account are considered to be as current assets.

Literature

1. K.K. Keulimzhanov, Z.N. Azhibayeva, N.A. Kudaibergenov, A.A. Zhantayeva. Financial Account. Textbook – Almaty, 2001 – p.345

2. Law of Republic of Kazakhstan “About the Accounting and the financial accounting” № 2732 from the 26^th of January, 1995 (with changes and additions entered with the laws of Kazakhstan Republic № 154-I, 11.07.1997; №436-I, 16.07.1999; №276-II, 24.12.2001; № 329-II, 24.06.2002; №562-II, 11.06.2004).

3. ISFA: future problems of conversion // An Accountant’s Bulletin, №32, August, 2005.

4. Formation of starting balance for conversion day: Recognition of assets and obligations according with the ISFA requirements // An Accountant’s Bulletin, №1, March, 2006

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6. Y.V. Lesnova. Management of the Debtor Debts and Credit Policy // Financial Management, №1, 2008, pp. 14-21

7. Y.V. Lesnova. Modern Conditions of Conversion into ISFA in Ukraine // Financial Management, №1, 2008, 99. 45-48

8. Ye.O. Nurseitov. The debtor and Creditor Debts: Account and taxing peculiarities. – “Buhgalter” Printing House – Almaty, 2003, 165 pages.