Reconciliation Statement: How to Draft It and Handle Differences

What to include

The statement is based on primary documents, so it is only as useful as the invoices and payment records are complete. Mandatory particulars of primary documents are set by Article 14 of the Law on Accounting: the entity's name; the document's name, number, date and place; the content and measure of the transaction; and the positions and signatures of the persons involved. Primary documents may be electronic.

• the parties' names, contract number and date (or several contracts — each separately), and the reconciliation period;
• the opening balance at the start of the period — for each party according to its own records;
• turnover: deliveries and services under e-invoices, payments under payment documents, offsets and returns — with document dates and numbers;
• the closing balance at the end of the period and the conclusion: in whose favour the debt is and how much;
• a section for any differences found, and signatures of authorised persons of both parties.

Who signs

Financial documents and settlement obligations are signed by the head of the entity or persons the head designates. The head approves two lists of persons with signing authority — management and accounting; documents without the signature of those persons are invalid (Article 13 of the Law on Accounting).

In practice, the statement is signed by the chief accountant and the head (or a person acting under a power of attorney) of each party. For limitation purposes, what matters is the signature of a person authorised to acknowledge debt on the debtor's behalf — an accountant's signature alone may not be enough if their authority is not confirmed.

How to resolve differences

• compare opening balances: a difference at the start means the error happened earlier — check the previous statement;
• check documents "in transit": an invoice issued at month-end that the buyer booked the next month;
• match payment references: a payment under one contract allocated to another or treated as an advance;
• look for unrecorded returns, discounts, corrective e-invoices and offsets;
• check exchange differences on foreign-currency contracts;
• then correct the books on the basis of the primary document and reissue the statement or attach a schedule of disagreements; corrections to primary documents not confirmed by the parties to the transaction are not allowed (Article 14 of the Law).

Reconciliation statements and the limitation period

The general limitation period is three years (Article 150 of the Civil Code). For obligations with a set performance date it starts when that date passes (Article 154).

The period is interrupted by filing a claim and by the debtor's actions evidencing acknowledgment of the debt. After the interruption the period starts again, and time elapsed before it is not counted (Article 157). A statement signed by the debtor that expressly states the amount owed is typical evidence of acknowledgment, although the court gives the final assessment.

A court accepts a claim regardless of whether the limitation period has expired but applies limitation if a party asks before judgment; expiry is a ground for dismissing the claim (Article 153). A debtor who pays after the period expires cannot demand the money back (Article 161).

Accounting and tax

The reliability of accounts and financial statements is confirmed by a mandatory stock count of assets and liabilities, conducted under the inventory standard — NAS No. 19 (Article 16 of the Law on Accounting). Reconciliation statements with key counterparties are a convenient basis for counting receivables and payables before the annual statements.

If a debt is never paid and the limitation period expires, it becomes a bad debt. A taxpayer may deduct bad debts related to taxable income of previous periods, but only if the debt has been written off and reflected in the financial statements (Article 313 of the Tax Code). A bad debt is one that cannot be repaid because of a court decision, bankruptcy, liquidation, the debtor's death or expiry of the limitation period.

Practical rules

• reconcile with major counterparties at least quarterly and always before the annual statements;
• track the date of the last acknowledgment of debt: if the three years are nearly up, request a signed statement or send a demand and file a claim;
• keep signed statements with the contracts and primary documents — they will be needed in an audit and in court;
• if a counterparty does not return a signed statement, keep evidence that you sent it (letter, electronic document exchange) to show attempts to settle accounts;
• do not write off a debt before the limitation period expires without other grounds — otherwise the Article 313 deduction is at risk.