Accounting classification of assets and liabilities in Bulgaria

The accounting classification of assets and liabilities is a fundamental element in the management of financial resources of an enterprise. One of the key topics on which clients often turn to for advice is precisely the clarification of concepts such as “what is an asset and a liability”, “the differences between short-term and long-term liabilities” or “how the company's capital is formed”. These issues often find their practical application in the construction of a “balance sheet” that would accurately represent the financial position of the enterprise.

“Assets and liabilities” are the two main components of the balance sheet, where assets include resources controlled by the entity, such as fixed and current assets, while liabilities cover liabilities that must be settled with future economic resources. Often clients ask questions related to the distinction between “equity” and “liabilities” or with specific categories such as “types of liabilities” and their importance for financial planning.

With the help of national accounting standards and “chart of accounts”, enterprises are able to classify and manage their assets and liabilities in accordance with the requirements of legislation and international accounting practices. One of the most important requirements is the correct and fair presentation of this data to assist both internal and external stakeholders.

The consulting company “Elan Consulting” offers expert assistance in all these aspects, providing specialized services in cities such as Sofia, Burgas, Nessebar and the whole of Bulgaria. In this article, we will examine in depth the topic of the accounting classification of assets and liabilities, including their importance for the management of financial resources.

What is an “asset” and what is a “liability” within the meaning of Bulgarian accounting legislation?

According to the Bulgarian accounting legislation and the established theoretical provisions, assets and liabilities are the main components of the balance sheet, which reflect the financial position of the enterprise.

Assetsare resources that the entity controls as a result of past events and that are expected to bring future economic benefits. They can be classified on the basis of various criteria:

1. By reversibility:
   • Fixed assets (non-current): Resources that are used over a long period of time, such as buildings, machinery, means of transportation, and intangible assets such as patents.
   • Current assets (current): Assets that are used or realized within a single reporting period, such as cash, materials, output and accounts receivable.
2. By economic nature:
   • Tangible assets: Concrete physical resources such as machines, buildings, lands.
   • Intangible assets: Rights and intellectual property such as trademarks and software products.
   • Financial assets: Investments, government securities and other financial instruments.

The liabilities, on the other hand, are liabilities of the entity that have arisen as a result of past events and that are expected to require an outflow of resources. They are also classified into:

1. By Requirement:
   • Long-term liabilities: Liabilities with a maturity exceeding one year, for example long-term loans.
   • Short-term liabilities: Obligations to be settled within one year, such as obligations to suppliers and personnel.
2. By ownership of capital:
   • Equity: Funds invested by owners, including retained earnings and reserves.
   • Attracted capital: Liabilities to third parties, including loans and other credits.

Classification of assets and liabilitiesis fundamental to the preparation of the balance sheet, and they are presented in two separate parties: assets reflect the entity's resources and liabilities reflect the sources of those resources, including equity.

According to the “Methodological Guide on Accounting Fundamentals”, assets are presented in the balance sheet according to their liquidity, and liabilities - by accounts receivable. This classification is in accordance with the principles established in the Accounting Act and the Commercial Law.

How are assets and liabilities classified?

The classification of assets and liabilities is a fundamental principle in accounting, which ensures the clear and systematic presentation of the financial condition of the enterprise. This classification is necessary for both internal management and external reporting of financial data. This is how the classification is carried out:

Assets:

Assets are divided according to different criteria that cover their nature, purpose and time aspect:

1. By economic nature:
   • Tangible assets: These assets include physical resources, such as buildings, machinery, means of transport, land and production equipment.
   • Intangible assets: They cover intangible resources such as patents, trademarks, intellectual property rights and program products.
   • Financial assets: Include investments in securities, government bonds and other financial instruments.
2. By time aspect (reversibility):
   • Fixed (non-current) assets: Resources that are used over a long period of time and are related to the main activity of the entity, such as machinery, land and facilities.
   • Current (current) assets: They are intended for use or realization within a year, including cash, accounts receivable, inventories and output.
3. According to the mode of occurrence and use:
   • Core Assets: They cover those that participate long-term in the operation of the entity, such as buildings and facilities.
   • Current assets: They are short-term and include inventories, accounts receivable and cash.

Liabilities:

Liabilities are classified on the basis of various criteria that reflect the sources of financing and the nature of the liabilities:

1. By Requirement:
   • Long-term liabilities: They have maturities exceeding one year, such as long-term loans, bond loan obligations and long-term obligations to suppliers.
   • Short-term liabilities: These liabilities must be settled within one year and include liabilities to suppliers, personnel, budget and short-term loans.
2. By ownership of capital:
   • Equity: This category covers the funds invested by the owners of the enterprise, including fixed capital, reserves and retained earnings.
   • Attracted capital: Includes funds provided through loans and other forms of lending from external sources.
3. In terms of funding:
   • Obligations: Represent current and future obligations to suppliers, employees or institutions.
   • Earnings for future periods: They reflect receipts that will be recognized as income in future periods.

This classification is the basis for compiling the balance sheet, in which assets and liabilities are presented to individual parties, the balance between them demonstrating the financial condition of the enterprise. Assets are ranked according to their liquidity (their ability to turn into cash) and liabilities by their degree of maturity. These principles are described in detail in the Bulgarian accounting legislation and support consistent and transparent reporting of the company's resources and liabilities.