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If you run a company or you who are responsible for accounting, you must follow the rules and requirements that apply in Sweden today. In this article, we give you an accounting guide for beginners. We will go through what bookkeeping is, important concepts you need to understand and the most basic in how bookkeeping is done in practice.
A simple explanation is that bookkeeping is a compilation of your business's income and expenses, or income and expenses that are a more common term in accounting. All business events within a accounting activity should be posted. Some examples of a business event are a sale, a purchase, wages, and debts. In order for the bookkeeping to be complete, there must also be a document for each business event that indicates that some kind of transaction has taken place to or from your business. This document is called a voucher in accounting.
Managing your accounting means that you compile but also value all the business events that take place within your business. All business events then affect your company's performance and financial position.
How you will manage your bookkeeping is regulated in Sweden by the Accounting Act. Your bookkeeping must be carried out on an ongoing basis and must be kept in readable form for at least seven years from the date an event has occurred. You also need to choose which type of accounting method is best suited for your business. We'll get to this later.
An important rule of thumb in accounting, and why bookkeeping is such an important part of your business, is that you distinguish your private finances from your company's finances. It is with the help of the bookkeeping that you keep track of the company's money and avoid mistakes. In your bookkeeping, you compile all the deposits and withdrawals that you make between the company and your private finances.
When you set up your bookkeeping, you do so by reporting what increases or decreases in your business. For example, when buying material, the money in your bank account decreases while the asset in the form of material increases. In your bookkeeping, you compile this using debit and credit. What is increased or added is set up on the debit side while what decreases is placed on the credit side. This means that there are always two sides to a business event or transaction. It is important to point out here that the final balance of this line-up should always be zero because a credit is always matched by a charge and vice versa.
Your bookkeeping can be done according to two main methods called the invoice method and the cash method. If your business has a turnover of more than three million per year, you must by law book according to the billing method.
The invoice method means that all the customer factors your company has are posted immediately after they have been created and that the invoices you receive from your suppliers are posted as soon as they come in. Once you have been paid for or have paid these invoices, you will post the payments separately from the invoices.
The second variant is called the cash method or also commonly referred to as the financial statements method. This method means that the accounting of all the revenue and expenditure in an activity is recorded only when the actual payments and payments are made. If you are running a business with a turnover of less than three million per year, you can choose to use this method. However, it is most common if the business in question does not have so many different transactions per year.
When you enter the world of accounting, you will probably come across the concept of good accounting practice. This concept means that as a business owner you apply all the accounting laws and practices that exist in Sweden today. Failure to follow good accounting practices can result in a fine.
Financial year means the period over which your company makes its financial statements or compiles its annual report. A financial year is normally covered by 12 months.
At the end of each financial year, your bookkeeping should also be completed with a so-called financial statement. A financial statement is a summary of the year's total accounts and can take the form of an annual accounts or an annual report.
The financial statements themselves consist of a summary of all your business events in one income statement and balance sheet. The income statement provides an overview of all revenue and expenses and shows the company's performance after the fiscal year. Instead, the balance sheet provides an overview of the assets, liabilities and equity that exist in the company.
A chart of accounts is really just a list of the accounts you choose to use to record all the business transactions of your business. The most common chart of accounts used in Sweden is called the BAS chart of accounts, which is also the most common in various accounting software. The advantage of using this chart of accounts is that it is adapted from the outset to Swedish legislation on bookkeeping and accounting.
When you keep your books, the basic and general ledgers are where you record all the business transactions that take place during a financial year. The general ledger is used to sort business events in a chronological order so that you can follow your activities over time. Instead, the general ledger is sorted by account number, with the lowest numbers at the top.
First and foremost, as a business owner in Sweden, you must keep your books by law, but there are other advantages to keeping your books. Bookkeeping is a means of keeping track of your figures and how your business is actually doing and developing over time. Accounting therefore gives you an insight into the well-being of your business, which is obviously important information to have when making strategic decisions.
It may also be the case that more important players outside your own business need to be able to gain an insight into your business in a way that they can understand and take on board. For example, the Swedish Tax Agency may need information when you file your tax return, or the bank may want to provide you with a loan when you want to make a new and important investment.
Keeping your books is also a way to learn more about business as you get a first-hand insight into how different things in a business are connected.
Keeping records of your business transactions is therefore a legal requirement in Sweden and an obligation you have as an entrepreneur. This obligation is called the bookkeeping obligation and is determined by the Bookkeeping Act. All legal entities in Sweden (limited companies, commercial companies, economic associations and sole proprietorships) are obliged to keep accounts.
As an entrepreneur, you are familiar with the concept of budgeting. Often, it's even where your entire business begins. Using a budget, you make a calculation to see if your proposed business will be able to be profitable or not. In business and accounting, two budgets are mainly used - a profit and loss budget and a cash flow budget.
The first budget you should focus on is your performance budget. The smart thing to do here is to set up the same account structure that you will use in your bookkeeping. This will make it easier to get it right from the start. In your profit and loss budget, you set out the income and costs you expect from your business so that you can also calculate how your business will do. You then compare your profit and loss budget with your actual results. Your profit and loss budget should cover a year, but it can be useful to set it up month by month.
Step two is to make a cash flow budget using your profit and loss budget as a basis. The cash flow budget is used to keep track of whether there will be money for the expenses you expect in the coming year.
As a final chapter in this guide, we thought we'd go through some common situations that will come up when you're doing your bookkeeping in practice.
The first thing to keep track of here is to continuously perform so-called reconciliations. When a month has passed and you have completed all the supporting documents for the business transactions that have taken place, you should carry out so-called reconciliations. This means that you do a spot check to check a selection of the balance sheet accounts you have. This is a good way of detecting any errors that may later lead to larger and more time-consuming actions.
As mentioned earlier, the main rule for archiving is that the records and accounting information must be kept securely for seven years. The information must be kept in a legible form. It is also important that the information is kept in its original form. This means, for example, that if you have a physical receipt as a basis, the information must also be stored in this way and not digitally.
Accruals mean that both income and expenditure are recorded in the same periods in which they are earned or used. An obvious example is a bill for the rent of an office. Should that invoice be for 6 months, then even though it is paid at one time, it will be recorded as a rental expense in the respective month for which the rent applies. An important exception is that VAT is not accrued.
With depreciation, you adjust the actual value of the assets you have by writing down the value of an asset as it declines in value, for example due to wear and tear. For example, imagine that you buy a machine and then write it off as an asset for a specific value. A few years later this machine will have lost value as you have used it. Depreciation is used to adjust the value down to the actual value of the machine and your asset.
If there seems to be a lot to keep track of or you want more time, please contact us!
