Settlements with contractors clarified

Procedures for settlements with contractors are not the simplest tasks for accounting departments. Accountants have frequently reported the need to clarify this matter. The publication of the statement by the Accounting Standards Committee is a response to this request – it proposes practical tips that we will use for the first time when creating financial settlements for the fiscal year that started on January 1st, 2019.

The principles explained

The statement prepared by the Ministry of Finance is a gesture towards accountants. It gathers rules and their practical interpretations that will help enforce the provisions of the law on accounting when settling with contractors. The content of the statement includes identification, interpretation of possible situations and determines their scope, the valuation and presentation method.

The statement focuses directly on:

• the rules for recognizing and measuring settlements with contractors,
• the rules for calculating settlements in foreign currencies,
• doubts regarding the relationship between the definition of receivables and payables and financial assets and liabilities.

Changing the nominal value

The statement also includes definitions of several types of discounts as well as guidelines for their correct accounting. As a reminder, the discount is a percentage or quota reduction of the nominal price for a product or service. The conditions for granting discounts are arbitrary, each time specified by contractors in the contract. Reductions can also serve as a compensation for lower quality products.

Types of discounts:

• transaction discounts – granted at the time of sale, modifying the price of the product or service on an ongoing basis. The issued document must include them in connection with the transaction.
• post-transaction discounts – e.g. complaints, refunds, filling out the minimum number when buying, are eligible. There should be an initial value in the books of accounts, changed according to the corrective proof.
• pre-discounts – in other words, bonuses in advance granted before the transaction. Contracts should specify the dates for the settlement of discounts and the minimum quantities of products needed to be bought for the discount to apply.
• skonto discounts – price reduction due to timely or immediate payment.

Settlements with contractors in foreign currencies

Liabilities in a currency other than PLN are subject to currency conversion directly in the book of accounts. The applicable exchange rate should be the average exchange rate announced by the National Bank of Poland – from the last business day preceding the transaction. The same principle should apply when settling discounts granted.

It will also be possible to apply the provisions for previous years accounting. The usage of the guidelines is not mandatory.

The full statement and the appendages with practical cases can be found here.