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Del credere reserve as a decrease factor in the financial risks of the organization

Vol. 18, Iss. 29, AUGUST 2015

Received: 11 August 2015

Accepted: 31 August 2015

Available online: 6 October 2015

Subject Heading: FINANCIAL ACCOUNTING

JEL Classification: 

Pages: 19-28

Kulikova L.I. Kazan Federal University, Kazan, Republic of Tatarstan, Russian Federation
777phd@rambler.ru

Yakhin I.I. Kazan Federal University, Kazan, Republic of Tatarstan, Russian Federation
Ilyakhin@gmail.com

Importance Forming provisions for doubtful debts and del credere reserve is one of the issues the contemporary accounting practice tackles. Currently, the effective Russian legislative acts and regulations on accounting fail to stipulate specific methods for accruing the said reserve. The article presents a historical overview of the del credere reserve concept, its origination and the process of forming and using this reserve in modern accounting practices.
     Objectives The research analyzes historical experience as views on the del credere reserve and devises a method for forming and using this reserve so to improve the contemporary theory and practice of accounting.
     Methods The methodological underpinning of the research includes proceedings by renowned Russian and foreign scholars in accounting who lived in the early 20th century. The reliability of findings we obtained was proved with the logic use of such methods as analysis, synthesis, observation, comparison, and logic generalization.
     Results Following the research, we propose a method for assessing the provision for doubtful debts, which would allow implementing the principle of mitigating financial risks of the entity. We also recommend a tailor-made approach to forming the del credere reserve per each item of doubtful debt. It is necessary to analyze reasons why counterparties delay in repayment of accounts receivable, and prepare internal statistical reports on timeliness of debt repayment. We present our method for assessing the reliability of counterparties on the basis of the past experience with debtors and suggest classifying counterparties per the reliability level and consolidating them into four risk groups. It is practicable for internal control over debtors, and disclosure of accounts receivable in financial statements.
     Conclusions and Relevance The provision for doubtful debt should be formed upon evaluation of the current corporate position and expected future economic benefits from repayment of accounts receivable.

Keywords: reserves, doubtful debt, formation, use, accounting, risk

References:

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  2. Kulikova L.I., Stepanov K.A. Printsip nepreryvnosti deyatel'nosti predpriyatiya v bukhgalterskom uchete i otchetnosti: monografiya [The going concern principle in accounting and financial reporting]. Kazan, Kazan Federal University Publ., 2009, 214 p.
  3. Arinushkin N. Balansy aktsionernykh predpriyatii [Balance sheets of joint stock companies]. Moscow, Izdanie yuridicheskogo knizhnogo magizina Pravovedenie of I.K. Golubev Publ., 1912, 239 p.
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  7. Kulikova L.I., Semenikhina N.B. Aktuarnyi balans i ispol'zovanie ego dannykh dlya otsenki finansovogo polozheniya predpriyatiya kak imushchestvennogo kompleksa [Actuarial balance and its data used to evaluate the financial position of the enterprise as a property complex]. Moscow, Nauchnaya biblioteka Publ., 2013, 88 p.
  8. Kulikova L.I. Formirovanie rezerva somnitel'nykh dolgov: bukhgalterskii i nalogovyi uchet [Making provisions for doubtful debts: financial and tax accounting]. Bukhgalterskii uchet = Accounting, 2011, no. 7, pp. 16–22.
  9. Kulikova L.I. Formirovanie otsenochnykh rezervov [Formation of allowances]. Finansovyi vestnik = Financial Bulletin, 2011, no. 5, pp. 70–79.

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