Being your own boss also implies new responsibilities, like keeping accounts. Many entrepreneurs entrust this legal obligation to financial experts. If you prefer to save on bookkeeper’s and accountant’s fees, you can keep track of everything yourself. In that case, your first question should be: do I have to keep single or double-entry accounts?
More than half of starting entrepreneurs opt for sole proprietorship. For them, a single-entry system is sufficient provided that their total annual turnover does not exceed 500,000 euros (incl. VAT). The same rule also applies to general partnerships and ordinary limited partnerships.
What does single-entry accounting entail?
In summary, you keep records of all income and expenditure:
- A sales daybook: a chronological overview of your invoices to customers, with consecutive invoice numbers.
- A purchase daybook: an overview of your supplier invoices and other expenses in relation to your business.
- A financial daybook: a cash book (for all expenses and receipts in cash) and a bank book (for all expenses and receipts via a bank account).
- An inventory book: a description and valuation of your stock.
Pros and cons
The so-called ‘simplified bookkeeping’ is an allowance granted to small entrepreneurs by the government. Under this system, you only need to keep track of your income and expenditure. Nothing more, nothing less. This makes it easier to do your own accounting and you waste less time.
Since the requirements for a single-entry system are limited, your bookkeeping is more on the surface. In other words, you miss an opportunity to turn your financial data into a policy instrument. Even in the event of a tax audit, single-entry accounting falls short because it has no probative value. Although they are not legally required to do so, some small entrepreneurs choose the double-entry bookkeeping system.
Sole proprietorships, general partnerships and ordinary limited partnerships with an annual turnover of more than 500,000 euros are required to use a double-entry accounting system. All other companies (nv, bvba, cvba, etc.) – regardless of the size of their turnover – have the same legal obligation.
What does double-entry accounting entail?
A double-entry accounting system is often referred to as complete accounts. This is due to the fact that, in addition to your company’s daybooks, you also need to keep a general ledger. In it, you substantiate all purchases and sales with payments or receipts, hence the term ‘double-entry accounting’.
The general ledger has a debit side and a credit side. Both keep each other in balance.
You sell a bike for 500 euros (= sales transaction). Someone therefore owes you 500 euros. You write this amount on the credit side. As soon as the buyer pays you – in cash or by bank transfer – you enter the new transaction against the previous sales record. This time on the debit side. Both transactions have the same description, which clearly shows that both amounts belong together.
Additional compulsory documents for double-entry accounting include the inventory and the annual accounts.
Pros and cons
Double-entry accounting provides you with a detailed picture of the financial health of your business. It also allows you to compare fiscal years, making it a useful policy instrument. Start-ups, especially, will benefit from these insights.
In theory, double-entry accounting is much more work, but with a simple software package for double-entry bookkeeping, you’ll minimise the extra time spent keeping accounts in order. However, you must file annual accounts with the National Bank of Belgium (NBB) for each financial year. Afterwards, these accounts are accessible to anyone who requests to see them. Consequently, they are a public document.
Charge VAT or not?
Most self-employed professionals, whether as a main or secondary occupation, have to charge VAT on their invoices. You are also obliged to file a VAT return every three months – or monthly for companies whose annual turnover exceeds 2.5 million euros.
Good to know: some sole proprietorships or companies are eligible for a VAT exemption. Your goods or services will thus become a lot cheaper and you will be exempt from filing VAT returns. Please note that this regulation is optional.
Correct accounting is essential for your business. Not only do these figures provide you with a financial overview of your own business operations, but they also constitute the basis for:
- part 2 of the annual personal income tax return.
- the annual list of VAT-paying customers.
- the quarterly VAT return.