1

Basics of Accounting

Lecture no. 11

dr Wojciech Hasik

[e-mail]

Inventorying

2

Essence of inventorying

Accounting

E
N
T
R
Y

MEASU

-RING

DOCUMEN

-TING

B O O K K E E P I N G

RECOR-

DING

COST

ACCOUNT.

INVEN-

TORYING

FINANCIAL

REPORTING

FINANCIAL

ANALYSIS

E
X

I

T

IDENTI-

FYING

• why should we perform inventorying?

•what should be a subject of it?

• how to present its results?

Regulation of inventorying

is not a subject of regulation in IFRS nor US
GAAP

subject of detailed regulation under PAA (chapter
3)

3

Regulation of inventorying - PAA

Timing:

should be performed at the last day of financial year

exceptions are allowed if:

–

proceedings has been started not earlier than 3 months before
the end of financial year and has been finished not later than
15 days after (do not concern inventories, monetary assets
and securities)

–

as for inventories stored in a guarded storages it is enough to
perform inventorying once in 2 years

–

fixed assets located in guarded areas – once in 4 years

–

stocks of materials and merchandise recorded in value terms –
inventorying is performed once a year (no matter when)

Regulation of inventorying - PAA

Methods (1):

1. monetary assets, securities, inventories, fixed assets

(assets under physical control of entity)

–

physical count

–

then: valuation of those assets and comparing to book
records and explanation and accounting for any disclosed
differences

2. any bank deposited assets, receivables (assets out of

physical control of entity)

–

receiving confirmation from banks or other entities

–

then: explanation and accounting for any disclosed
differences

4

Regulation of inventorying - PAA

Methods (2):

1. fixed assets that are difficult to access, land, doubtful

receivables

–

comparing account book figures to appropriate
documents

–

then: verifying the existence and actual value of those
assets

Types of records (books)

5

Types of records (books)

Accounting records (books) are:

journal

nominal ledger (general ledger)

and also:

detailed ledgers (f.e. personal ledger)

trial balance

Accounting policies

6

Accounting policies

accounting policy

≠

creative accounting,

balance sheet policy

accounting policy reflects all entity’s
decisions in all aspects in which legal
regulations leave:

–

optional accounting methods

–

freedom of choice (professional judgment)

accounting policies are stated in a document

Accounting policies
(requirements of PAA)

Entity shall prepare documents describing (in Polish)

adopted accounting policies, including in specific:

1) determining the financial year and (mid year)

reporting periods

2) assets and liabilities measurement methods, and

methods of profit and loss preparation

3) methods of bookkeeping,
4) systems of all data protection (ledgers, documents,

etc.)

7

Accounting policies
(requirements of PAA)

In the range of bookkeeping,

a) entity’s chart of accounts

stating listing of all ledger accounts (main
ledger), adopted classification rules, rules of
analytic ledgers usage and their connections
to synthetic accounts

b) list of all ledgers

The introduction to financial reporting

8

Legal basis for financial reporting in
Poland

1.

Act on accounting:

Ustawa z dnia 29 wrze

ś

nia 1994 r. o

rachunkowo

ś

ci, Dz.U. Nr 121/94 poz. 591 z pó

ź

n. zmianami – (wersja

aktualna na stronie: http://isip.sejm.gov.pl/prawo/index.html)

2.

Regulation of the Council of Ministers on reporting
requirements for issuers of securities:

Rozporz

ą

dzenie

Rady Ministrów z dnia 21 marca 2005 r. w sprawie informacji bie

żą

cych

i okresowych przekazywanych przez emitentów papierów
warto

ś

ciowych (Dz.U. 2005 nr 49 poz. 463),

3.

International Financial Reporting Standards (IFRS):

Mi

ę

dzynarodowe Standardy Sprawozdawczo

ś

ci Finansowej (MSSF)

Tom I i II, IASB, SKwP

Legal basis for financial reporting in
Poland

differentiation of reporting requirements in Act on
Accounting:

–

entities not governed by act on acc. (no reporting
requirements)

–

entities governed by act on acc. :

partnerships (spółki osobowe) (with turnover over 800TEUR)

all capital companies

–

entities with expanded reporting requirements:

joint stock companies (spółki akcyjne)

banks, insurers and other entities functioning on financial
markets

other entities which fulfill quantitative criteria for „big entities”

9

Legal basis for financial reporting in
Poland

Reporting obligations of securities issuers

–

sole financial statement of public company

–

consolidated financial statement prepared by public company

connections between elements of
financial statement

10

Structure of Cash Flow Statement

Segment no. 1

operating activities

DIRECTLY or INDIRECTLY PRESENTED

Cash inflows and outflows

Segment no. 2

investing activities

Cash inflows and outflows

Segment no. 3

financing activities

Cash inflows and outflows

Net increase in cash and cash equivalents

Net cash from operating activities

Net cash from investing activities

Net cash from financing activities

Structure of Cash Flow Statement

DEFINING THE REPORTING SEGMENTS:

Operating activities -

the principal revenue-producing activities of

the entity and other activities that are not investing or financing activities

Investing activities -

the acquisition and disposal of long-term

assets and other investments not included in cash equivalents

Financing activities -

activities that result in changes in the size

and composition of the contributed equity and borrowings of the entity

11

Operating activities

The common examples for operating activities:

cash receipts from the sale of goods and the rendering of services

cash receipts from royalties, fees, commissions and other revenue

cash payments to suppliers for goods and services

cash payments to and on behalf of employees

cash receipts and cash payments of an insurance entity for premiums
and claims, annuities and other policy benefits

cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities

cash receipts and payments from contracts held for dealing or trading
purposes

Investing activities (1)

The common examples for investing activities:

cash payments to acquire property, plant and equipment,
intangibles and other long-term assets

cash receipts from sales of property, plant and
equipment, intangibles and other long-term assets

cash payments to acquire equity or debt instruments of
other entities and interests in joint ventures

cash receipts from sales of equity or debt instruments of
other entities and interests in joint ventures

12

Investing activities (2)

The common examples for investing activities:

cash advances and loans made to other parties

cash receipts from the repayment of advances and loans
made to other parties

cash payments for futures contracts, forward contracts,
option contracts and swap contracts except when the
contracts are held for dealing or trading purposes, or the
payments are classified as financing activities

cash receipts from futures contracts, forward contracts,
option contracts swap contracts except when the contracts
are held for dealing or trading purposes, or the receipts
are classified as financing activities

Financing activities

The common examples for financing activities:

cash proceeds from issuing shares or other equity
instruments

cash payments to owners to acquire or redeem the entity’s
shares

cash proceeds from issuing debentures, loans, notes,
bonds, mortgages and other short or long-term borrowings

cash repayments of amounts borrowed

cash payments by a lessee for the reduction of the
outstanding liability relating to a finance lease