Replenishment of working capital: sources, accounting, accounting entries

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Quite often in the process of doing business, there are moments when the company begins to urgently need additional money. In this case, the company's management can borrow money from a credit institution or use a commodity loan. But as a result of such actions, the enterprise will be obliged to pay a certain percentage, which is assigned for the use of borrowed funds. How profitable is the replenishment of working capital in this way for the enterprise, and what other options are there for stabilizing the difficult economic situation of the company?

How to replenish the shortage of working capital in the most profitable way

Faced with this problem, any company seeks to get a loan on more favorable terms, as additional costs do not contribute to the restoration of economic stability.

Credit for replenishmentworking capital is easiest to get at the bank. But is it worth it to hurry with such a step? In addition, the company does not always need cash. Sometimes, for the continuous conduct of the economic process, there are simply not enough certain raw materials or spare parts. In this case, it would be wiser to use a natural loan.

There is another way to get help - this is the replenishment of working capital by the founder. This option is considered the most preferable for the enterprise.

Founding assistance of the company

Requesting the help of the founders' meeting is the first decision. You can replenish the missing funds by making a contribution to the authorized capital, in the form of gratuitous financial assistance and by increasing the property base. In order for the replenishment of working capital by the founder to be executed correctly, the consent of 2/3 of the participants is required. By decision of the general meeting, changes are made to the constituent documents. They prescribe the new value of deposits in proportion to the share of each participant. Additional contributions must be received on the account no later than two months from the date of signing the decision.

After the final replenishment of working capital is executed in the form of additional agreements to the constituent documents, it is necessary to submit an application for registration of the changes made to the tax office.

Pros and cons of investment aid

The company has the right to use cashfunds of the founders at their discretion, and without tax consequences. This form of assistance has its pros and cons. On the positive side, the replenishment is not subject to tax payments, since the funds of the founders do not participate in the taxable base. Founding assistance is of an investment nature and is not related to the sale of goods and services.

The disadvantages of such a loan can be considered that all changes in capital have to be registered in the tax office. Also, with an additional contribution of working capital, there is an imbalance between net assets and the amount of authorized capital.

Getting help in the form of a bank loan

To receive financial assistance, the company has the right to use the bank's loan funds. At the conclusion of the contract, the conditions for the provision of funds and the timing of their return are stipulated. Such replenishment of working capital has its own expense side, which is expressed in the form of accrued interest. In the tax base for income tax, such expenses are taken into account with a certain limitation. Accrued interest can be written off at a rate that is set depending on the size of the current refinancing rate.

The advantage of such a loan is that the bank is a reliable partner that always acts within the framework of the law. The disadvantages include a large number of documents that have to be collected when applying for a loan, interest deductions, as well as additional costs,associated with opening a loan account. Expenses arising from the use of borrowed funds are included in non-operating costs.

Commodity loan received from supplier

There are situations when banks refuse to provide a loan, or a company needs not cash, but raw materials. In this regard, the company begins to look for alternative sources of replenishment of working capital. Oddly enough, the solution to the problem may be simple. Sometimes it is enough for a company to report its difficulties to business partners, namely those counterparties who supply the necessary raw materials.

Such lending is called commercial and has its advantages. The parties to the transaction agree on a certain deferral of payment for the supplied materials. Contractual relations are documented and provided either free of charge or with interest. Indirect replenishment of working capital is formalized by the relevant primary documents. The counterparty is obliged to issue an invoice for the amount of accrued interest.

How is the replenishment of working capital, transactions

Depending on the type of financial assistance, certain entries are made in accounting. If financial injections are provided in the form of gratuitous assistance to the founders, then the accountant makes a posting to the debit of account 51 in correspondence with account 98. Then the amount received is debited to the credit of account 91.1 to recognize gratuitous assistance as other income. Atupon receipt of property assistance, replenishment of working capital (posting Dt 08 Kt 98) is drawn up depending on the purpose of the valuables.

Accounts 66 and 67 are used to issue credit money. Funds received on the current account are credited in accounting with the following entries: Dt 51 Kt 66 (67). Replenishment of working capital by attracting borrowed money allows the company not to interrupt the production process and fulfill contractual obligations to customers on time.