Publication date: May 29, 2025
The Polish Accounting Act does not define the concept of liabilities, however the balance sheet layouts indicated in Annexes 1-6 to the Accounting Act allow us to state that liabilities are sources of financing assets. Liabilities indicate where the funds from which the assets were acquired or created came from. The main groups of sources from which the financial resources from which the assets shown in the balance sheet were obtained are: 1) equity of the entity preparing the balance sheet, 2) liabilities and 3) accrued expenses. Such an understanding of liabilities leads to the conclusion that the sum of assets and the sum of liabilities shown in the balance sheet must be equal. This view was presented by the Judgment of the Polish Regional Administrative Court in Warsaw of 17 October 2017, III SA/Wa 2678/16, LEX no. 2760834.
Liabilities are the financial obligations of the company and equity, representing the sources of financing its assets. Liabilities include equity (funds) and liabilities and reserves for liabilities. This is a concept used many times in the Act of 29 September 1994 on Accounting (Journal of Laws 1994 No. 121 item 591, hereinafter referred to as the Act).
Liabilities are divided into:
Equity represents the value that owners or shareholders have contributed to a company. It can increase if profits are retained in the company or if owners increase their capital contribution. Equity is not a liability, does not require repayment, so it is a kind of security in case the company encounters financial difficulties.
Equity can be further divided into:
It is important to distinguish liabilities (accounts payable) from expenses. Expenses are the costs of running a business (shown in the income statement), while liabilities are the debts of a business that must be paid off in less than or more than 12 months, depending on their type (shown in the company’s balance sheet). An expense, if not paid off immediately, can only cause a liability (accounts payable) with a delay.
It clearly follows from the content of the annex to the Accounting Act that liabilities are a source of financing for asset components, i.e. the entity’s assets. It clearly follows from the content of Annex I, item Liabilities, letters A and B, that liabilities are generally divided into equity/own funds and external equity/funds, i.e. liabilities and “reserves for liabilities”. Consequently, external equity/funds, including reserves for liabilities, cannot be considered own funds within the meaning of Art. 2 item 18 letter a of the Regulation (Judgment of the Supreme Administrative Court of 12 March 2024, I GSK 244/23, LEX No. 3734780).
Balance sheet
The balance sheet is one of the basic elements of the financial report (Article 45, Section 2, Item 1 of the Accounting Act), the preparation of which is the obligation of entities conducting business activity. The balance sheet is defined as a statement of the state of the entity’s assets and the sources of their financing as of a given balance sheet date.
The balance sheet of a company presents the state and structure of the assets (property) held by the company expressed in money and indicates the sources of their financing – liabilities. Unlike the profit and loss account – the balance sheet is static – it reflects the state of assets at a given moment and is prepared based on data from the company’s accounting system current on the day of its preparation. As a rule, the balance sheet is created at the end of a given fiscal year and it is for this specific day that the balance sheet items are determined. The information contained in the balance sheet must be complete and fully documented. Assets called property resources are defined as resources with a reliably determined value, created as a result of past events and intended to cause an inflow of economic benefits to the entity in the future. They are divided into fixed and current assets depending on the time for which the company plans to use the given components. Liabilities are also sources of financing. They are divided into equity (own sources of financing) and liabilities (external sources of financing) (Resolution of the District Court in Szczecin of 27 November 2017, VIII Gz 326/17, LEX No. 2403383).
In order to ensure high quality of financial statements and comparability of information over time, the entity is required to present in the balance sheet the state of assets and their sources of financing as at the end of the current and previous financial year. The entity preparing the report is required to present comparative data only from one balance sheet date, but may extend their number in order to facilitate potential users of the financial analysis of the entity.
The total value of assets and liabilities will always be equal. Accordingly, the basic balance sheet equation takes the form of the equation:
ASSETS = LIABILITIES
This assumption can be restated in various ways:
ASSETS = EQUITY + LIABILITIES
FIXED ASSETS + CURRENT ASSETS = LIABILITIES
NET ASSETS = ASSETS – LIABILITIES
The basic principle of preparing the balance sheet is the so-called net principle (Article 46, paragraph 2 of the Accounting Act), according to which the value of individual groups of asset components shown in the balance sheet assets results from their book value adjusted by:
Financial assets and liabilities are presented on the balance sheet at net amounts after offsetting, provided that the entity has the unconditional right to such settlement and intends to do so on a net basis or to simultaneously settle the financial liability and transfer the financial asset.
For example:
Bilateral balance sheet (simplified) model
| Assets | Liabilities |
| A. Fixed assets I. Intangible assets and legal rights II. Tangible fixed assets 1. Fixed assets 2. Fixed assets under construction III. Long-term receivables IV. Long-term investments V. Long-term prepayments B. Current assets I. Supplies 1. Materials 2. Semi-finished products and work in progress 3. Finished products 4. Goods 5. Advances on deliveries II. Short-term receivables 1. Receivables from related parties 2. Receivables from other entities a) for deliveries and services with a repayment period of: -up to 12 months -over 12 months b) from taxes, subsidies, customs duties, social and health insurance and other benefits c) other d) pursued in court III. Short-term investments 1. Short-term financial assets a) in related entities -shares or shares -other securities -loans granted -other short -term financial assets b) in other units -shares or shares -other securities -loans granted -other short -term financial assets c) cash and other monetary assets -cash in hand and in accounts -other cash -other monetary assets 2. Other short -term investments IV. Short-term prepayments C. Due contributions to share capital (fund) D. Own shares | A. Equity capital (fund) I. Basic capital (fund) II. Reserve capital (fund) III. Capital (fund) from revaluation IV. Other reserve capital V. Profit (loss) from previous years VI. Net profit (loss) VII. Write-offs from net profit during the financial year (negative value) B. Liabilities and provisions for liabilities I. Provisions for liabilities 1. Deferred income tax provision 2. Provision for pension and similar benefits 3. Other reserves II. Long-term liabilities 1. Towards related entities 2. Towards other units a) credits and loans b) from the issue of debt securities c) other financial liabilities d) for deliveries and services with a due date of: -up to 12 months -over 12 months e) advances received for deliveries f) bill of exchange liabilities g) for taxes, customs duties, insurance and other benefits h) for salaries i) other 3. Special funds IV. Accruals |
| Total assets | Total liabilities |
The balance sheet is one of the most important elements of the financial report. It consists of appropriately grouped assets and liabilities of the entity, which is obliged to comply with the designated accounting principles (Article 5, Section 1 of the Accounting Act). The balance sheet provides information on the property and financial situation of a given entity at a given time.