Liabilities in the trade balance must be divided. On the one hand, these are debts about which there are no uncertainties, because they are clearly present both in terms of time, i.e. in terms of their maturity, and in terms of their amount and existence. On the other hand, there are also liabilities that either have to be at least assumed in their existence or for which there is uncertainty regarding the time of payment or their amount. In the latter case, provision is made in the trade balance for uncertain liabilities in order to distinguish between fixed liabilities. As regards fixed liabilities, there is a peculiarity associated with the accounting for foreign exchange claims. For example, liabilities in foreign currencies must be adjusted in the event of changes in the balance sheet. This also means that it may have to be valued beyond the nominal amount initially recognised at the foreign exchange spot mean exchange rate. However, this only applies if there is a remaining term of a maximum of one year.

1.Liabilities in the Trade Balance – Introduction

Just as on the asset side all accountable assets are recorded in the trade balance, liabilities and other liabilities belong to the liability side. In addition to the identification of equity, there are also provisions there. Although certain principles apply in the accounting of assets and liabilities in commercial law in general – and thus also for liabilities – but in some situations the legislature considered it appropriate to introduce special rules for certain purposes. This also applies, among other things, to the accounting of liabilities in the trade balance. That is why we would like to highlight these specific features in this contribution.

Liabilities in the trade balance: the difference to provisions

So we are now focusing on liabilities. Capital and provisions, which are also part of the liabilities, should therefore be left out. Provisions are basically also liabilities. However, provisions are liabilities which are uncertain as to the date of their creation, their amount or their reason. They are in a sense imperfect liabilities that have the potential to become real liabilities in the future. The reason why they are still included in the balance sheet is related to the imparity principle.

In this context, the imparity principle states that one must always account for burdensome effects on the assets of a company. In this way, this principle serves the protection of creditors. If a creditor has no knowledge of the amount of the business partner’s liabilities, an important prerequisite for estimating the risk of a loss of performance is missing. This means that the creditor is not in a position to operate from a reasonable commercial point of view.

3. Accounting for liabilities in the trade balance

But enough of the provisions, which are subject to a large number of special rules of commercial law. We will discuss these in more detail in a separate article. Now we want to report on the specifics of accounting for liabilities in the trade balance.

3.1. General treatment of liabilities in the trade balance

First of all, we should start with the simple rules when accounting for liabilities in the trade balance. This means that we will first address the general rules that also apply to liabilities. First and foremost, the principle of individual assessment should be mentioned. This principle states that, among other things, liabilities must also be recognised individually. The relevant legal norm here is § 252 paragraph 1 number 3 HGB. Furthermore, § 253 (1) sentence 2 HGB is also important. Unlike assets, which are usually recognised either with their acquisition or production costs, liabilities must be recorded in the balance sheet with the settlement amount. The settlement amount is of course the nominal amount, which shows, for example, an open invoice.

3.2. Special features in accounting for liabilities in the trade balance

The peculiarities with which we are to treat liabilities in the trade balance, unlike the other rules, stem from the fact that these are liabilities in foreign currencies. Because foreign currencies are subject to ongoing price fluctuations, they must be recorded with their current value in order to take account of the imparity principle. This therefore means that both in the event of a price gain and in the event of a price loss, the balance sheet must be presented at the foreign exchange spot mean exchange rate. § 256a HGB thus ensures that, regardless of other provisions of the HGB, the current course must be set in the preparation of the balance sheet. However, this only applies if the remaining term is a maximum of one year.

4.Liabilities in the trade balance – Conclusion

Anyone who is already informed about the treatment of foreign currency claims may be familiar with what has been said here about liabilities in foreign currency. In fact, the same legal norms govern both aspects. Nevertheless, there are some differences. Unlike foreign exchange claims, which are a usable asset, liabilities have no wear and tear and therefore no amortization. Nevertheless, both claims and liabilities in foreign currency are subject to a clear adjustment rule in the event of a change in value. In addition, the signs are reversed in this case. While a currency claim always represents a balance and this can only be higher or lower than initially recognised, we always have to deal with a settlement amount for liabilities in foreign currency. This means that there is no real practical benefit from a foreign currency liability in this respect. A foreign exchange account is not very advantageous for this.

Further effects of foreign currency liabilities may arise if interest is payable on them. On this, however, one must again refer to the general valuation rules, which exclude the presentation of unrealized profits.