IN-DEPTH GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME

Transcription

1 IN-DEPTH GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME BY BIC SARDEGNA SPA 1

2 LIST OF CONTENTS INTRODUCTION... 3 REQUIREMENTS... 3 THE ACCOUNTING AND TAX FORMALITIES: THE COMPULSORY ACCOUNTING BOOKS... 3 THE VAT REGISTER... 4 THE REGISTER OF PURCHASES... 4 THE REGISTER OF SALES... 5 THE DAILY TAKINGS BOOK OF DAY-BOOK... 6 THE INVENTORY REGISTER... 7 THE JOURNAL OR DAILY TAKINGS BOOK OR DAY-BOOK... 8 THE FIXED ASSET REGISTER... 9 THE CORPORATE BOOKS...11 THE SHAREHOLDERS' MEETING RECORDS...11 THE BOD REGISTER...12 THE BOARD OF AUDITORS REGISTER...12 BALANCE-RELATED OBLIGATION...13 TIME LIMITS FOR KEEPING RECORDS

3 INTRODUCTION This guide is intended to provide an in-depth and clear analysis of the rules applied to the ordinary accounting management system. REQUIREMENTS In order to be eligible to the ordinary accounting scheme, a business is required to comply with the requirements provided by law. In a nutshell: ordinary accounting may be applied to sole proprietorships or partnerships; ordinary accounting is compulsory for joint-stock companies or cooperatives; if a company operates in the tertiary sector and its turnover exceeds EUR 400,000 a year, the ordinary accounting scheme is compulsory; if your company operates in the trade or the production sectors and its turnover exceeds EUR 700,000 a year, the ordinary accounting scheme is compulsory. The term "turnover" refers to the revenues derived from the sale of goods and service provision, duly registered and subject to the application of IVA/VAT (Value Added Tax). For further information on how the Italian VAT system works, please refer to the Guide to VAT. Here are some examples: your company operates in the field of IT and your expectation is to reach a turnover of EUR 600,000. In this case, the ordinary accounting scheme does not apply. If a company sells cars and its turnover does not exceed EUR 500,000, either the simplified accounting scheme or the ordinary accounting scheme may be selected. THE ACCOUNTING AND TAX FORMALITIES: THE COMPULSORY ACCOUNTING BOOKS The orderly and timely management of a company is carried out through the scheduling of the accounting and tax obligations. Compared to a company governed by a simplified accounting system, an ordinary accounting company is required to keep a greater number of documents, which are referred to as books and records. The books and records are: the VAT register; the inventory register; the day-book; 3

4 the register of depreciable assets (or asset register); the stakeholders' meeting records: the BoD register (if applicable); the Board of Auditors register (if applicable). GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME Furthermore a company managed under an ordinary accounting scheme is required to keep its set of ledgers: they include all the budgetary items of the company. Each of these documents has a specific function: let's take a closer look. THE VAT REGISTER Let's start with VAT register. The list includes the register of purchases or sold ledger; the register of sales or bought ledger; the ordinary ledger or daily takings book. It is not always compulsory to keep all registers: you will discover shortly that there are other facilitations. THE REGISTER OF PURCHASES The register of purchases must include the details of all the documents related to the purchase of goods and service provision made for the purpose of carrying out business activities. These documents are referred to as purchase invoices. The details of the purchase invoices which are to be reported on the register of purchases are: the date of the invoice (which must include the day, the month and the year of reference); the details of the subject issuing it (legal form, name, address, tax code and VAT number); the purchase price, VAT excl. (that is, the taxable income); the VAT percentage calculated on the base price (that is, the rate); the total (the sum of the taxable income and VAT quota); 4

5 any reason for VAT exemption; the date of registration in the accounting books. Also, the invoices reported on the register of purchases shall include progressive numbering, that is, digit shall increase by +1 for each following item and must not include any discontinuation. The first invoice shall be number 1, the second number 2, the third number 3 and so on. Once numbered, keep in mind that all purchase invoices must be filed, preferably following an increasing chronological order (from the oldest to the most recent one). An example of an entry of the book of purchases is provided: Prog. No. 2 of X - La Romana srl - invoice No. 640 of X Taxable income: EUR % VAT: EUR Total: EUR THE REGISTER OF SALES The register of sales must include the details of all the documents related to the sale of goods and/or service provision made during the business activity. These documents are referred to as sales invoices (or issued). The details of the invoices which are required to be registered on the register of sales are: the date of issuing of the invoice (which must include the day, the month and the year); the details of the company (legal form, name, address, tax code and VAT number); the details of the recipient of the invoice (legal form, name, address, tax code and VAT number); the sales price, VAT excl. (that is, the taxable income); the VAT percentage calculated on the base price (that is, the rate); the total (the sum of the taxable income and VAT quota); any reason for VAT exemption; the date of registration in the accounting books. 5

6 As already noted for the book of purchases, the invoices shall be numbered progressively on the register of sales. Similarly, once numbered, the sales invoices must be filed, following an increasing chronological order (from the oldest to the most recent one). If the invoices are direct (i.e., are issued the same day when the sale or the service was sold/provided), remember that they must be registered on the register of sales within 15 days from the date of issue. For example, a direct invoice issued on February 12th, must be registered by February 27. If the invoices are deferred (i.e., are issued at a later time during the year when the sale or the service was sold/provided), they may be registered on the book of sales as late as the 15th day of the month following the date of issue. For example, a deferred invoice issued on April 19th must be entered by May 15th. Let us take a look at an example of an entry of the register of sales: Prog. N. 4 of X - ABC Marco Neri invoice no. 4 of X Taxable income: EUR % VAT: EUR Total: EUR THE DAILY TAKINGS BOOK OF DAY-BOOK If your company operates as a retailer, the details of the documents related to the sales of goods and/or services carried out by the company may be registered on an ordinary ledger. The ledger includes the revenues of a company working in the retail sector. If you decide to open a retailing business, invoices are not compulsory: a receipt or a cash slip will just suffice. The ledger must include the amount of money (in EUR) of all the invoices issued in one day and report the total of the proceeds of each month. However, the register of sales may also be kept and invoices may be issued. For example, if you released slips amounting to EUR 200, 300 and 500, the entry line for March 23rd may report a total amount of EUR 1,000. The details that must be registered on the ledger are: the month and the year of reference; the date of registration (one line for each date); 6

7 the total amount deriving from the invoices issued each day; GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME the total amount deriving from the invoices issued each month; the overall value of the receipts issued each month, VAT excl. (that is, the taxable income) the VAT percentage applied (that is, the rate). Remember that the receipts to be added to the ledger must be registered within the first working day following the payment. If, for example, the money is paid on April 26th (Saturday), the entry must be registered within the 28th of April (Monday). For the book of purchases, the register of sales, and the ledgers, make sure to not leave any extra spacing between the digits and the lines, including scraping off or rubbing out. Any mistake rectification is to be left visible. 1 THE INVENTORY REGISTER Another compulsory log is the inventory register. This document includes the economic and financial situation of the company, including: the calculation and evaluation of corporate assets and liabilities; the set of possessions at the disposal of the company divided by type and value; the budget and the profit and loss account. The budget and the profit and loss account will be described later on. All these aspects are governed by Articles 2214 and 2217 of the Italian Civil Code: full text area available at the following link: Each page of the register must be numbered progressively. A stamp duty is also required, its value being: EUR (for joint-stock companies and cooperatives); EUR (for partnerships and sole proprietorships). Stamp duties may also be paid by either: applying the physical stamp every 100 pages for the equivalent value; 1 For more information on VAT register regulations, refer to the Italian VAT code (DPR 633/72) at the following link: 7

8 submitting an F23 form. Here is simulation of the assets reported in a corporate inventory register: Tangible assets: EUR 10,000 air conditioning systems: EUR 2,000 Furniture: EUR 1,500 Electronic devices EUR 2,500 plants and equipment: EUR 4,000 THE JOURNAL OR DAILY TAKINGS BOOK OR DAY-BOOK The journal is the accounting document systematically reporting all the information relating to the business activities carried out by a company. The items are registered on the journal in chronological order. Each registered item describes a fact relevant to the company and is referred to as an accounting entry. Accounting entries include five pieces of information: the description; the entry number; the date of registration; the accounts; the amounts; the "Debit" and "Credit" columns. The journal is governed by Article 2216 of the Italian Civil Code: for further information, please refet to the following link: Each page of the register must be numbered progressively. A stamp duty is also required, its value being: EUR (for joint-stock companies and cooperatives); EUR (for partnerships and sole proprietorships). 8

9 Stamp duties may also be paid by either: applying the physical stamp every 100 pages for the equivalent value; submitting an F23 form. Here is a simulation of an accounting entry registration in the journal: Date Debit account Credit account Debit amount Credit amount X Due to suppliers Bank a/c 1,000 1,000 Description: ABC supply paid by check no THE FIXED ASSET REGISTER This log includes the details regarding the essential goods necessary to carry out business activities: their purchase, sale, yearly depreciation and so on. 2 For instance, furniture, a plant, a piece of machinery or a building may be regarded as essential goods. Specifically, they are essential for the carrying out of business activities for a long period of time. Keep in mind that, in a simplified accounting system, you have the chance to also include their details in the VAT register of purchases, making it unnecessary to fill in and keep the fixed asset register. The following details are to be included in the fixed asset register: the type of asset and its description; the date of purchase; the value of purchase; the yearly depreciation of an asset (that is, its amortization); the depreciation already registered in previous years (that is, the accumulated depreciation); the residual value; the depreciation rate; 2 Fixed asset registers are governed by Article 16 of Italian Presidential Decree 600/73: full text at the following link 9

10 Let's see an example of a registration on the fixed asset register: GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME Category: Furniture - Description: Walnut desk 180x90cm supplier XYZ Date: X - Value: EUR 1,000 - Depreciation rate: 10% Amortization: EUR Accumulated depreciation: EUR 200 Residual value: EUR 700 The LEDGERS The ledgers are the books reporting corporate events occurring during the carrying out of business activities. These facts are registered in chronological order. Each ledger includes: an account heading; the year when the corporate events occurred; the date and the number of the entry of each corporate event; the amount of each entry; the opening balance of the account; the closing balance of the account. Here is a simulation of the drafting of a ledger: ABC customer register - year 201X Opening balance on X: EUR X No collection ft. 1 EUR Closing balance EUR 200 What has already been said on the VAT reigsters, also applies to the rest of the accounting books: make sure to not leave any extra spacing between the digits and the 10

11 lines, including scraping off or rubbing out. Any mistake rectification is to be left visible. 3 THE CORPORATE BOOKS This section describes the most important corporate books provided for by the Italian Civil Code. These books report the most important events of corporate life. Therefore, keeping them is very important. Also, keep in mind that if the company is incorporated as a joint-stock company or a cooperative, their drafting and conservation is mandatory. Let us take a look at: the stakeholders' meeting records: the BoD register; the register of the Board of Auditors or the Internal Auditor register. The Partners' Assembly, the BoD and the Board of Auditors (or internal auditor) are referred to as the corporate bodies. The Partners' Assembly has decision-making powers, the Board of Directors plays a managing role and the Board of Auditors (or the internal auditor) oversees and verifies business activities. If this management model is chosen, a traditional management scheme is highly advisable. In any case, be aware that since January 1st, 2004, other two types of management are available: the monistic model; the dualistic model. 4 THE SHAREHOLDERS' MEETING RECORDS The shareholders' meeting records include the minutes of all corporate meetings. Through the vote of its members, the Assembly is responsible for taking decisions on important issues, such as: the budget approval; 3 For more information on VAT register regulations, refer to the Italian VAT code (DPR 633/72) at the following link: 4 This guide will only include a description of the traditional model: for further information on the other models, please refer to articles 2409-octies and following of the Italian Civil Code at this link: 11

12 the payment of the members of the governing bodies; the appointment and firing of the directors and the auditors; GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME the performance of actions against liable directors and, in some cases, even against the members of the Board of Auditors; any change in the articles of incorporation of the company. THE BOD REGISTER If a company is managed by more than one person, a Board of Directors must be gathered. Alternatively, a sole director may also been appointed. The BoD register includes the minutes of the meetings. The Board is entitled and required to: set the objectives and guidelines for development of the company; decide and adopt business strategies in line with the set objectives; submit the provisional balance sheet to the shareholders' assembly for approval. THE BOARD OF AUDITORS REGISTER If a company: has a share capital exceeding EUR 120,000; it is required to draw up a consolidated balance sheet 5 ; controls a company that is required to undergo an audit for its balance sheet; and for two years in a row has exceeded two of the following caps: 1. EUR 4,400,000 in the assets column of the balance sheet; 2. EUR 8,800,000 of revenues; 3. an average of 50 employees during the year. then it is necessary to set up a Board of Auditors or hire an internal auditor. These governing bodies are intended to oversee and audit the actions taken by the directors. The Board of Auditors register includes the minutes of the meetings. 5 The consolidated balance sheet is a document that represents the economic and financial situation of a group of companies, that the main company (referred to as parent company) has the obligation to draw up. 12

13 The Board (or the internal auditor) is entitled and required to: gather at least every 90 days; carry out inspections and audits; GUIDE TO THE ORDINARY ACCOUNTING MANAGEMENT SCHEME attend the meetings of the Board of Directors and Shareholders' Assembly; draw up the balance report. For further information of the tasks which the Board of Auditors is required to perform, please refer to Articles 2403 and following of the Italian Civil Code, the full text of which is available at the following link: All these books must be numbered consecutively, duty stamped and endorsed (that is, signed by the competent Chamber of Commerce), before being used. BALANCE-RELATED OBLIGATION Drawing up the balance sheet is compulsory if the company is: a shared-stock company, a cooperative or a consortium; a partnership managed under an ordinary accounting scheme The balance sheet is a document that is intended to report the economic and financial situation of a company. The economic situation is the result of the analysis of the revenues, the costs and any entry connected to both assets and liabilities. On the other hand, the financial situation includes the details of corporate assets and liabilities. For instance, if raw materials are purchased to perform business activities, costs are been generated. If products are sold, revenues are generated. If raw materials are paid, corporate debts and cash are being reduced: corporate assets are therefore being modified. The financial statement of a company includes three sections: the balance sheet, the income statement and the additional note. The balance sheet reports the assets and the liabilities, their amounts and their classification (eg, credits, bank, debts, stock capital, etc.). The income statement includes the revenues, the costs and all other positive and negative entries (eg., salaries, purchases of goods, income, etc.), which generate the socalled yearly performance. The yearly performance can be either a profit or a loss. 13

14 The additional note includes the criteria to audit the elements of the balance sheet and the income statement, their description and the variations performed during each year of activity. The balance sheet is approved by the shareholders' assembly, upon proposal of the directors. It then must be filed at the competent Chamber of Commerce. For further information on the drawing up of balance sheets, please refer to Articles 2423 and following of the Italian Civil Code, full text available at the following link: TIME LIMITS FOR KEEPING RECORDS All documents and records must be kept for 10 years, starting from the date of the last registered entry. Such term is set by Article 2220 of the Italian Civil Code. For instance, if the last item is entered on December 6th, 2013, you are required to keep the records until December 6th, The Italian tax laws instead provide that the documents and records relating to tax declarations must be kept for 4 years after the submission deadline of the relevant tax return. The obligations connected to the tax return will be explored later on. In this case, for the year 2013, the tax return submission date will be September 30th, Therefore, the 2013-related documents must be kept until December 31st, Nonetheless, we strongly advise to keep the records for the longer term, that is, 10 years. 14