accounting guide[1]

8/6/2019 Accounting Guide[1]

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Accounting Guide

An introduction to different aspects of Norwegianregulations

VINN

NO-8512 Narvik

[email protected]


2/23 Copyright VINN - 2 - Written and compiled by the Bedin team ( www.bedin.no )

Table of Contents

P REFACE ........................................................... 4

1. TREAT ACCOUNTING AS S ERIOUS BUSINESS ...... 5

2. ACCOUNTING S YSTEM ..................................... 8

3. UNDERSTANDING THE ACCOUNTS ................... 10

4. MANAGEMENT TOOLS BUDGET .................... 13

5. REPORTING .................................................. 15

6. INVOICE YOUR S ALES QUICKLY AND C ORRECTLY....................................................................... 16

7. B ALANCING THE CASH .................................. 19

8. WAGE P ROCEDURES ..................................... 21

9. S TOCKTAKING WHY AND HOW ..................... 23


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Copyright VINN - 3 - Written and compiled by the Bedin team ( www.bedin.no )

Acknowledgements

This guide is a translation of the NorwegianAccounting Guide (Regnskapsguiden) found inwww.bedin.no . The Norwegian guide is written byOddgeir Berntsen together with advisers at VINN.Translation to English by Snorre Jrgensen, withvaluable assistance from Hanne Rossvoll Larsen. Allmistakes a - both factual and with respect to language- are solely our responsibility.

Copyright VINN (2007)

We will emphasize that the information in this guideis introductory. Additional information can be foundin the web links we have included with the text.However, at the time of writing the acts referred toare not available in English.

If you find errors or perhaps have other comments,please don't hesitate to contact us via www.bedin.no or [email protected] . Your contributions will beappreciated.

Our main information sources:VINN - www.bedin.no The Brnnysund Register Centre - www.brreg.no The Tax Administration - www.skatteetaten.no The Ministry of Finance - government.no (MF) The Financial Supervisory Authority of Norway -www.kredittilsynet.no/ The Lovdata Foundation www.lovdata.no

Narvik, 10.10.07

The Bedin Team at VINN,Snorre Jrgensen

Revised:06.03.08 (SJ)
http://www.bedin.no/http://www.bedin.no/http://www.bedin.no/http://www.bedin.no/http://www.bedin.no/mailto:[email protected]:[email protected]:[email protected]://www.bedin.no/http://www.bedin.no/http://www.bedin.no/http://www.brreg.no/http://www.brreg.no/http://www.brreg.no/http://www.skatteetaten.no/http://www.skatteetaten.no/http://www.skatteetaten.no/http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.kredittilsynet.no/wbch3.exe?p=2068http://www.kredittilsynet.no/wbch3.exe?p=2068http://www.lovdata.no/http://www.lovdata.no/http://www.lovdata.no/http://www.lovdata.no/http://www.kredittilsynet.no/wbch3.exe?p=2068http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.skatteetaten.no/http://www.brreg.no/http://www.bedin.no/mailto:[email protected]://www.bedin.no/http://www.bedin.no/


4/23 Copyright VINN - 4 - Written and compiled by the Bedin team ( www.bedin.no )

his guide offers a simple introduction to some of the essential areas of bookkeeping and accounting inNorway. After reading the guide, we hope you arefamiliar with the basic tasks and able to make the

decision whether to do the accounts yourself or engageexternal expertise. The purpose is to help you getstarted.

We will cover the following topics:

Chapter 1: Treat Accounting as SeriousBusiness

Should you do the accountingyourself? What type of accountingsystem to use?

Chapter 2: Accounting SystemLegal requirements, both with respectto the accounting system and theaccountant. How is value added tax(VAT) calculated in an accountingsystem? And how to organise thevouchers?

Chapter3: Understanding the AccountsWhat does the profit and lossstatement tell us, how to interpret thebalance sheet and what is theconnection between liquidity andequity? Also understand therelationship between profit andliquidity. Do you save tax by rapiddown payment on your loans; - doyou save tax by investing this year?

Chapter 4: Assisting Tools BudgetDo you need a budget? If so, how tomake one? How to assess yourfinancial situation; are you doing wellor poor? Budget simulation.

Chapter 5: Reporting Requirements ReturnsAre you VAT liable? How to submitthe necessary returns: VAT, AnnualAccounts, Income Tax Return, payrolltax and tax deduction.Chapter 6: Invoice Your Sales Promptlyand CorrectlyWhat should the invoices look like,how frequently should you invoice

your customers and what is actuallythe cost of the credit period?

Chapter 7: Balancing the CashWhat are the legal minimumrequirements? How to balance the

cash? Cash register and vouchers.Chapter 8: Wage PaymentWhat to consider, do it yourself orengage an accountant? How to specifya travel expense sheet?

Chapter 9: StocktakingWhat is required according to thelegislation? How to establish soundroutines? What to remember?

See more about accounting in the web

pages of The Norwegian Associationof Authorised Accountants (NARF ).Also see Skatteetaten (Tax

Authorities), The BrnnysundRegister Centre (brreg.no/ ) and Lovdata (Legislation). Althoughmainly in Norwegian, you will findsome information in English too.When relevant supplying informationis available in English, we willprovide links.

If still in doubt, call us duringwork hours at Narvik BusinessHotline, toll free number 800 33 840,and we will assist you immediately.

Preface

T
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A sound accounting system is probably the best management

tool you will possess in your business.It is important that you learn the basics: How to interpret the data the accounting system offers.How to make the accounting system produce the reports required by the authorities.

Spend some time, particularly in theearly stages, getting sound routinesand systems for your accounting:

Find good collaboration partners

Design a sound chart of accountsConsider which reports you willrequireDevote some time to the accountingevery dayKeep up to date and maintain theoverview: Then you will know if you are on the right course.

Handle the accountingyourself?If you feel for it and possess thenecessary competence, you mayconsider doing the accountingyourself. At least in the early phasesof the business' existence, that maybe a reasonable and inexpensivesolution. Bookkeeping will give youinsight and close relations to the"inner life" of the business.Nevertheless, you should seek assistance from a licensedaccountant (see further info ) orauditor to help you design the chart

of accounts and establish the properbookkeeping routines.

When the enterprise expands,people are employed or the businessgrows in other respects, you shouldconsider engaging an externalaccountant, e.g. an accountingagency or employ one.

A note on the accountinglegislationThe Norwegian accountinglegislation consists of two differentacts regulating statutory reportingand registering of financialinformation. The acts are called theAccounting Act (Regnskapsloven)and the Bookkeeping Act(Bokfringsloven). Bookkeeping isdefined as registration of transactions and other dispositionsthat directly affect the assets,liabilities, equity, income or costsin the accounting system.

Whether the enterprise mustconsider both acts or only the latter,depends on the type of business inquestion. The standard terms thatare used are "bokfringspliktig"(obliged to bookkeeping on aregular basis) and "regnskaps-pliktig" (obliged to both keep thebooks and prepare annual accounts).

Important accounting terms

Some terms are vital whenaccounting is considered. In orderto do the accounting yourself, youshould know the "lingo":

Account: A place to register andsystemize accounting data.Transactions of identical nature arefiled in the same account, e.g. costsof goods sold are always filed in theCosts of goods sold account.Chart of accounts: The chart is

specified to conform to the type of business and the requirements given

by the Accounting Act. In addition,the chart should fulfil the business

information requirements. There aretwo types of accounts, the revenue(turnover) accounts and balancesheet accounts. The account numbernormally consists of four digits.Debit / credit: An account hasnormally two sides; the left handrepresents debit and the right handside credit. Entering data in thedebit side is called debiting and incredit crediting. This principle maybe illustrated with a T-account, i.e.a visual representation of anaccount where both the debit andcredit sides are shownsimultaneously,Account balance: Shows the neteffect of all data entered into anaccount at a given point in time.The account balance is the sum of the balance transferred from theprevious period and the net effect of all transactions in the currentperiod. The overall balance orgeneral ledger (in Norwegiansaldobalanse) is a list of allaccounts showing the respectiveaccount balances at a certain pointin time.Double-entry bookkeeping: Theprinciple is that all transactions areentered twice, i.e. each transactionresults in at least one account beingdebited and at least one accountbeing credited, with the total debitsof the transaction equal to the totalcredits.

Closing of accounts: The overallresult is the sum of the accountbalances of all revenue accounts. Aprofit in the period means anincrease in the business' equity,while a loss causes reduced equity.

If you intend to do thebookkeeping yourself, youshould master these tasks:

1. Enter the account number on thevouchers. The actual task is calledentering (in Norwegian kontering )

1. Treat Accounting as Serious Business
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and means assigning the voucher toaccounts for bookkeeping in the

accounting system.2. Decide on how to treat purchaseswith respect to value added tax(VAT). The VAT rates differaccording to types of products/-services. Input VAT that cannot bedocumented by vouchers is notdeductible.

3. Determine if an expense incurred byan employee in the course of her/hiswork must be included in theperiodic record sheet, i.e. in the reporting of tax deductions andpayroll tax.

4. Determine if major purchases of machines and furniture/fixturesshould be capitalized or regarded asoperating expenses. The generalrule is that fixed assets are enteredin the balance sheet accounts at thetime of purchase.On the other hand, minor (insigni-ficant) purchases may be treated asoperating expenses. In accountingthere is no specific limit for choiceof one or the other method.However, when it comes totaxation, the criteria are welldefined.

5. Enter the data into an accountingsystem. Note that the NorwegianTax Authorities recommend that anordinary spreadsheet, e.g. MSExcel, is not used as accountingsystem, with reference to thegeneral bookkeeping principlesconcerning protection of theaccounting material.

6. Work out the financial statement,i.e. the income statement plusbalance sheet, for a limited periodof time, normally every twomonths. It is important that incomeand expenses are entered in thecorrect period.

7. Specify purchases and sales on therespective creditors' and customers'ledgers (in Norwegian reskontro ).Such ledgers are intermediary

accounts between supplier andcustomer (and vice versa). When an

invoice is received, the data isentered in the accounting system on

the actual date of reception. It isdebited an expense account andcredited the creditors ledger. Whenthe invoice is paid, the payment iscredited the account for the bank and debited the creditors ledger.

8. Balance the accounts for bank, cashregister and public duties/fees. Allaccounts in the balance must bedocumented.

9. Balance the customers' andcreditors' ledgers. The transactionsentered are compared withcorresponding data registered by thecustomer/creditor.

10. Work out documents required bythe Tax Office, the MunicipalTreasurer and the BrnnysundRegister Centre. The list of documents includes the periodicrecord sheet (reporting taxdeductions and payroll tax), theannual tax return and correspondingincome statement, the VAT Returnand the annual accounts (financialstatement).Note that all your reporting dutiesare listed in The Register of Reporting Obligations of Enterprises web pages . You willfind your duties by entering yourenterprise's organisation number. If you have not obtained theorganisation number yet, you willfind the duties by enteringthe type of organisation (e.g. soleproprietorship, limited liabilitycompany, etc.),the industry sector andthe number of employees.

These pages are in Norwegian only.An explanation in English to theregister is found here .

You will surely manage, but

To many people the tasks andobligations are consideredacceptable. With some training,

dedication and a sound accountingsoftware you will probably manage

most tasks. Ask experts when indoubt. Nevertheless, as a rule of thumb, spend your time on the tasksyou master best and buy otherservices from reliable professionals.And accounting may turn out to beone such service.

The price is decisive to manyentrepreneurs. Perhaps you willcalculate a lower hourly price thanthe professional accountant. But doremember that the accountant willcarry out the tasks much faster andprobably more accurate than you doyourself. Also, you should valueyour spare time!

When engaging the accountant youshould preferably choose one thatalso may serve as a consultingpartner in handling the daily chal-lenges. See more than one agencyand seek advice from your bank,auditor and/or other enterprise.

The Act on Accounting by External Representatives contributes tobetter service from the professionalaccountants. All agencies should atleast have one licensed accountant,with the proper education andexperience. The FinancialSupervisory authority of Norway(Kredittilsynet) supervises thelicensed (authorized) accountants,and spot tests have revealed that thequality varies significantly.

The accountant is obliged to set upa written agreement stating thetasks he/she is responsible for andwhat tasks are expected to becarried out by you (as principal). Inaddition the agreement should listwhich reports to produce and whenthey will be submitted.
http://w2.brreg.no/oppgaveregisteret/http://w2.brreg.no/oppgaveregisteret/http://w2.brreg.no/oppgaveregisteret/http://www.brreg.no/english/registers/obligations/obligations.htmlhttp://www.brreg.no/english/registers/obligations/obligations.htmlhttp://www.brreg.no/english/registers/obligations/obligations.htmlhttp://www.brreg.no/english/registers/obligations/obligations.htmlhttp://w2.brreg.no/oppgaveregisteret/


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Keep the business andpersonal finances apart

It may prove an expensive and timeconsuming exercise to tidy financialmatters where the business andpersonal finances are mixedtogether. A distinct divisionbetween the two is important in thedaily work.

Open a separate bank accountfor the business. Pay all expensesrelated to the business from the

business account.

What type of accountingsystem?If you do the bookkeeping yourself,you need an accounting system(software). The Bookkeeping Actlists a number of requirements thesystem must satisfy. It must forinstance provide proper overviewand be able to produce all reportsrequired by the act. HomemadeExcel-solutions tend to becomplicated when you have tohandle VAT and account ledgers.

The magazine PC World testsaccounting systems frequently. Tomany small businesses some of these software packages areperfectly adequate. If you need amore complex system, you shouldcontact several suppliers and ask fora price offer and a demonstration.

Ask someone proficient inaccounting (such as youraccountancy agency or auditor) tohelp you find the system mostsuitable to your needs. Also, itmight be a good idea to choose asystem that is widely used. Havingsomeone to ask or assist you whenthe system breaks down afterhundreds of vouchers are entered isvaluable.

Make sure the system canproduce all reports required by theact.

Among other things, the accountingsystem should be able to:

Print specifications on paper, even ifthey are stored electronically

Provide proper overview

Retrace the control path

Be aware that you may have topresent documentation of theaccounting system to the authorities


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What are the legalrequirements?

A well prepared financial statementis an important steering tool for you

and your business. Furthermore, theauthorities require that you keepaccounts. The Bookkeeping Actstates that all information necessaryto produce specifications requiredby the act and the required reportsmust be entered.

The registration must at leastinclude:

1. Number and date

2. Information of sum and amount3. Codes that indicate location in the

accounting system4. Reference to accompanying

documentation5. Possible tax calculation (e.g. VAT)6. Possible name of buyer or seller

(account ledger entry)

Before the financial statement isfinalised for submission to the

authorities, the registered date maybe altered in the system withoutadditional documentation. When thereports are produced and the periodfinalised, the system must notaccept any changes.

Correcting misplaced vouchersmust then be carried out by enteringa new record. The original recordmust be reversed in its entirety. Thecorresponding voucher shouldindicate which original voucher iscorrected and the reason for thecorrection.

If a registered record has to bedeleted, e.g. if an invoice is entered

twice, a journal of records or avoucher must specify that thedeletion has occurred.

ReportsThe act specifies the minimum suiteof reports the system must be ableto produce:

1. Journal of records (bookkeeping

specification).2. Account specification (mainledger).

3. Customer specification (customers'ledgers).

4. Supplier specification (creditors'ledgers).

5. Specification of owner withdrawals.6. Specification of sales to the owners

and/or partners and personalwithdrawals.

7. Specification of sales and otherbenefits to management personnel.

8. Specification of VAT.9. Specification of taxable

remunerations included in theperiodic record sheet.

Note that there are specificregulations regarding cash sales.These are discussed in chapter 7,On Balancing the cash.

StorageThe Bookkeeping Act states that thefollowing records must be kept for10 years:Annual accounts, annual report andthe auditor's report.Additional required accountingreports, e.g. annual tax return, theperiodic VAT return, etc.Specifications of the account

records required by the legislation,such as the main ledger and the journal of records.

Numbered letters from the auditor.Documentation of recorded and

deleted information (vouchers).Documentation of the accountingsystem.Documentation of the balance sheet.

Some business sectors, e.g. hotels,businesses serving foodstuff,hairdressers and taxis must complywith additional requirements.

Certain documents (records) mustbe stored for 3.5 years. These are:

Significant business contracts.Correspondence adding valuableadditional information inconnection with an entry.Packing slips or similar recordsavailable on paper at the time of delivery.Price lists required by thelegislation or regulations.

The accounting records must bestored in an orderly manner andshall be adequately secured againstdestruction, loss or alteration. Therecords must be available forinspection by the proper authoritiesduring the entire storage period.

How to calculate the ValueAdded Tax (VAT) in an

accounting system?The VAT is easily handled by theaid of VAT tags. The sum on theinvoice, including VAT, isrecorded. How to handle the VAT isthen indicated by the tag (code)given to the transaction. The tagsmay vary from one system to thenext, but the most common are:

2. Accounting System

0 No VAT

1 Deductible input VAT

2 Output VAT


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The record may appear as follows:

From the above you will recognizethe record as an input invoice, i.e.one that permits the deduction of the VAT. The invoice sum is NOK1500. If the sum is punched into theaccount no. 6800 with a 1 (one)

VAT tag, the system will producethe following records:

When all the vouchers are recordedin the period, you may produce aVAT Return directly from theaccounting system.

How to organise thevouchers?If you only have a few vouchers peryear, you may file all the vouchersby date in a folder. With a highernumber of vouchers, this methodmay not provide necessary insight.

The registration of the voucherswill be faster if the bookkeeper can

work on similar vouchers in series.File the vouchers in a folder and usea dividing front page for eachsection.

If you have many vouchers youshould use one folder for eachaccounting period. A common methodfor organising the vouchers is asfollows:

1. Sundries vouchers2. Bank 3. Cash register sorted by date4. Input invoices sorted by suppliers

5. Output invoices sorted by number

The oldest vouchers areplaced at the back of eachsection, and the newest atthe top. The bookkeeperwill always start at the

back and work forward whilenumbering the vouchersconsecutively.

If the number of bank statementsis substantial, you may considerdividing between payments anddeposits. If you use more than one

bank account in your business, sorteach one separately.Allow for time to scanthe mail every day.Immediately check inputinvoices against thecorresponding list of

contents. Does the invoiced numberof items match the received numberof items?

If the invoice is correct, youmay immediately certify it and file

it in the vouchers' folder. If you useinternet banking, the payment iseasily prepared at the due date. If you use payment by letter giro, thegiro part must be prepared and filedin a system according to date due.

Remember that the invoice must berecorded in the period even if pay-ment is not due until the nextperiod. It is the date on the corres-ponding voucher that determines

which period the invoice belongs to.If you receive an invoice the monthafter the commodity or service inquestion was received, a copy of theinvoice must be filed in thevouchers' folder carrying the print"copy time limited".

If you receive an invoice on adelivery that will take place nextmonth (the following period), theinvoice is recorded as a pre-payment expense. The actualexpense is activated when thecommodities/services are received.Note that it is only the net value

that is time limited, the VATfollows the date of the invoice.

What else to do?A sound system for the vouchers isan important step to reduce theamount of time spent on the book-keeping. In the transition timebetween periods, check eachvoucher specifically in order todetermine the correct period.

If you have engaged an externalbookkeeper:Hand over the vouchers' folder

as soon as you have received thebank statement for the period. If avoucher is not self explanatory, addan explanation.

Respond quickly when thebookkeeper asks for additionaldocumentation.

Keep the number of own with-drawals at a minimum, preferably

no more than 1-2 transactions permonth.Note again that personal and

business matters should not bemixed. Therefore, use a separatebank account for the business.

Further readings:

Tax Calendar (in Norwegian)

Internet based VAT Return (inNorwegian)

When starting a new business youhave to:

Present a start-up balance

Have a share capital of at least NOK100 000 (for an AS)

Design a suiting chart of accounts

DATE Voucherno.

ACCOUNT VAT SUM

2212 15030 6800 1 1500

Account no. 6800 Stationary, debit NOK 1200

Account no. 2710 Input VAT, debit NOK 300

Account no. 2400 Supplier debts, credit NOK 1500
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The accounts are designedaccording to a standard chart of accounts available from sources likeThe Norwegian Association of Authorised Accountants (NARF)

(www.narf.no ). Basically theaccounts are divided in two parts:The profit and loss statement andthe balance sheet.

What are the accounts?The accounts are meant to conveyfinancial information to the readerand play an important role in thefinancial management of thebusiness. The accounts are toolsthat help you get an overview: Howmuch you earn, what resources areused, what you own and your debts.The balance sheet gives anoverview of the financial position atthe end of the period, while theprofit and loss statement shows thefinancial development in thatperiod.

What does the profit and lossstatement tell us?The profit and loss statement is atable showing all income andexpenses. In Norway, the incomesources are given the accountnumbers between 3000 and 3999.Expenses have account numbersbetween 4000 and 8999. By usingthe standard chart of accounts, youmay comply with the authorities'requirements with respect tospecification of the accounts.

The result shows the actual profit orloss in the period. If for instance therent is paid quarterly, only the rentfor the actual period is listed in theexpense account. The rent for thenext two months is recorded as pre-paid rent. The accounts are timelimited (to the actual period) whenthe actual income and expenseswithin that period are included.

Typical time limited records are:DepreciationInsuranceInterestsHoliday payPayroll taxAccrued, not invoiced incomeInventory adjustments

The profit is meant to cover thecompany's taxes and possible

dividends. Profit after taxes anddividends is added to the company'sequity capital and transferred to thenext year. By strengthening thecompany's equity, the businessbecomes more sound and preparedto withstand possible future losses.The rule of thumb is to retain profituntil the equity reaches 20 - 25% of the company's assets.

If the business is a sole

proprietorship, the profit must alsocover the owner's salary, i.e. ownwithdrawals and taxes.

What does the balance sheetreveal?The balance sheet has two sides thatobviously must balance: It showshow the business is being funded,and how those funds are being used.The balance equation states that thetotal value of the assets equals thetotal value of the equity plus theliabilities. If the sums of the twosides are different, then there is amistake in the balance sheet. Anincrease in the value of one assetmust be countered by a decrease inthe value of another, an increase inthe debts or an increase in theequity (share capital and reserves).

Likewise, an increase in thevalue of a liability account must becountered by an increase in thevalue of an asset, a decrease in thevalue of another liability account ora decrease in the equity.

Finally, changes in the balancemay be caused by a combination of the cases above.

3. Understanding the Accounts

Account Contents of the accountgroups

3000 - 3999 Income

4000 - 4999 Expenses

5000 - 5999 Personnel costs

6000 - 6099 Depreciation

6100 - 7999 Other operational costs

8000 - 8199 Financial income and

expenses 8200 - 8999 Extraordinary records, tax

and allocation

= Profit / loss (result)
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The business may have a hugeprofit and still face bankruptcy.

It is correct that the profit maycontribute to strengthen theliquidity, but the liquidity is alsoaffected by down payments onloans, investments, increase in theinventory and payments to suppliersand the owners.

Do you save tax by more rapiddown payments on the loans?

No, there is no tax reduction ondown payments. You only receivetax reduction on the interests.

Do you save tax by investingthis year?

Yes, you may save tax by investingin December compared to waitinguntil January next year. If thepurchase has a value of more thanNOK 15 000, the asset has to becapitalized. Then you can benefitfrom full tax related depreciationeven if the investment is done inDecember. The condition is that thedelivery also takes place inDecember.

Considering investments, you maywant to know the most commonannual rates of depreciation inNorway:

Investment in a new company carwith a value of NOK 300 000 willyield a tax liability reduction of

NOK 60 000 the first year, providedthe company is in a position to paytax.

Remember:The equity capital should count for 20-25 % of the total funding

Liquidity is crucial

Stay updated on tax legislation

Office machines, computers 30%

Trucks, lorries 20%

Ordinary cars, (office) furniture 20%


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Is a budget necessary?

In order to provide the best start-upconditions possible for the

company, one needs a set of plansas well as a system for measuringthe effects of the actions taken.Consider the following:

You work within the framework of financial constraints. And allyour decisions have consequences.Without a budget you are likely toremain in the dark you do notknow where to head, and you do notknow how far you have reached.

How to device a budget?The business plan is normally a fairstarting point. So are the annualaccounts from last year (providedyou have been in business thatlong).

1. Profit demandsWork through the accounts, one byone. Use a spreadsheet, for instance

the one below for the first crudeversion of the budget:

When you have considered allincome sources and all expenses,the second phase of the budgetdevelopment starts. Is the profitgreat enough to satisfy your and/orthe owners ambitions?

In a limited liability company (AS),the owners will often demand ayield in the form of dividends.

Often you will have to reconsiderall expenses, check out changes andlook at opportunities for increasedsales.

When your budget shows asatisfactory profit (or evensatisfactory loss), you are ready for:

2. Monthly budgetIf you want to compare your budgetwith the accounts on a monthlybasis, you have to prepare a timelimited budget.

What are the income and expenseseach month? You have to considerseasonal variations and calculatesales and supply of raw materialsmonth by month. Are the seasonalvariations also affecting the cost of labour?

3. Liquidity (cash flowprojections)

If you plan newinvestments, new loans orgenerally have poorliquidity, cash flowprojection may be a goodidea. The projection systemsimulates loan down pay-ments, credit times, invest-ments, handling of taxes,etc. Note that a spreadsheetmay not offer sufficientflexibility when the

number of variables islarge. Thus, it may be smart to seek assistance from a professionalaccounting agency. We have,however, included a link to aspreadsheet suitable for a smallbusiness at the end of this chapter.

4. Funding alternativesA well designed liquidity budgetmay reveal unnecessary capitalconstraints and poor funding.

Considering the framework conditions (e.g. income, expenses,credit times, interest rates, etc.) thatare entered into the budget system,you can observe how the liquiditydevelops month by month.

A shop selling clothes has typically60% of the turnover in the secondhalf of the year. Obviously, withsuch major variations, the impact onthe liquidity will be substantial.

5. Budget simulationHaving a comprehensive liquiditybudget, one has a very soundstarting point for assessing theeffect of investments and newfunding.

The budget offers the opportunity tosimulate the operation on paper (orscreen). What happens if the gross

profit margin is raised by 1%? Whatif the credit time is reduced by 10days? And what happens if we get

4. Management Tools Budget

Acc. Accountname

Last year Change Budget

next year

3000 Sales 500 000 + 5% 525 000

4300 Costs ofgoods sold 300 000 + 5% 315 000

5000 Salaries,wages 100 000 + 3% 103 000

5092 Holiday pay 10 000 + 3% 10 300

5400 Payroll tax 15 538 + 3% 16 004

5990 Other socialbenefits 15 000

Nochange 15 000


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rid of the overdraft allowance andinstead get a mortgage loan? This is

a fun, interesting and veryimportant exercise you can do byyourself, together with youraccountant or your auditor. Youwill probably be surprised to see theimpact of even minor actions.People experienced with budgetingmay give you valuable advice onhow to improve both theprofitability and cash flow of yourbusiness.

6. Comparing with the accountsThe last step in the budget processis to check the real profit and lossstatement against the budget. Mostaccounting software is able topresent the accounting together withthe corresponding budget entries inone single report.

When you check how you performcompared to the budget, you willrealise if the business is doing as

well as you planned when you madethe budget.

At an early stage you will be able todetect discrepancies compared tothe budget. Note however, thatsome deviations are acceptable. If you struggle with the profitability,any deviation requires a correctionof the course. And you should do itwhen you still have the steeringpower! Maybe you have to return to

step 1 in the budgeting process torevise the plans?

Tools and information:

Business Plan Template Budget Template Cash Flow Projection spreadsheet Financial Performance Indicators

Tips and hints:

Use last y ears accounts as a startingpoint

Create realistic budgets

Use your budget to measureperformance

Review your budgets on a regularbasis
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For users of annual accounts softwareThe users of such software are

already familiar with the electronicsubmission of the tax return. From2008 the internet based service isextended so that preparedinformation from the tax authoritiesmay be downloaded to the annualaccounts software. Another noveltyfor 2008 is that personal tax payersmay submit their tax returns viasuch software.

Self employed persons andpartners of unlimited companieswho wish to submit their returnsprior to 1 April may do so from midFebruary via their annual accountssoftware. However, the preparedinformation from the tax authoritieswill not be available until April.

Important dates

For limited companies and otherlegal entities subject to taxation:

Payroll tax and incometaxationThe payroll tax and the employees'income taxes (PAYE) are paid bi-monthly to the local Tax CollectionOffice.

Tax deductions must be depositedin the bank account opened for that

purpose not later than one workingday after the wages have beentransferred to the employees. Themoney stays in that particularaccount until paid to the TaxCollection Office. The alternative isto issue a bank guarantee thatalways will cover the taxes.

You have to calculate the payrolltax and pay the amount to the localtax collection office. One must usethe correct type of payment form.Payroll tax is paid directly from thecompanys bank operating bank account.

The annual certificates of pay andtax deducted are due the yearfollowing the income year, with thefollowing deadlines:

20 January: Paper version31 January: Electronic version.

Approximately1 April:

The tax return form isissued.

30 April: Deadline for submissionof the tax return onpaper.

31 May: Deadline for electronicsubmission atwww.altinn.no .

31 March: Deadline for submissionof the tax return onpaper.

31 May: Deadline for electronicsubmission atwww.altinn.no .
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If you give your customers credit,you should write the invoices as

quickly as possible after delivery of the goods or services. It is important to collect your money without unnecessary delay.

For some, poor invoicing routineslead in some instances to forgettingthe invoice completely. In othercases, the invoices are soincomplete they may lead the taxauthorities to make an estimatedraise in the in the income (fortaxation purposes).

What should the invoice looklike?Date of the issue of thedocumentation.Number that is assigned by theinvoicing system or pre-printed.Name and address of the businessselling the commodity or service.The business organisation(company) number followed by theletters MVA (VAT) if thebusiness is registered in the VAT

Register .Name and address or theorganisation number of the businessthat receives the commodity orservice. Note that the name andaddress of the buyer is notobligatory when selling for cash.A description of the commodity orservice.The quantity or extent of thegoods/services rendered.The price of the goods/services andwhen payment is due.The time and place of delivery.

If applicable, VAT and other taxes.Tax eligible and tax free sales, as

well as sales exempted from VATshall be listed separately and thetotal for each group calculated. Thesame rules apply when the salesconsist of goods/services that havedifferent VAT rates.

The invoice is issued in at least twocopies, where one is kept by theselling company.

Erroneous invoices must be stored,

but marked obliterated (inNorwegian "makulert").Thus, the series of numberson the invoices is keptintact, and one may easilyfind those that are notincluded in the accounting.

Using manual bookkeepingof the (output) invoices,one may choose not toregister the erroneous ones.

Using automatic transferfrom the invoice part of theaccounting software, theerroneous invoices must becredited internally.

Adding VATAll businesses registered in theVAT Register must in principle addVAT to the output invoices,

regardless of the recipients. Theexceptions are for instance export,sales of second hand cars and work on public roads.

When to invoice?Write the invoice as soon aspossible after the goods/services aredelivered, preferably in the very dayof the delivery.

In the directives to theBookkeeping Act, the deadlines fordifferent types of invoices areregulated.

The act itself states that theinvoice must be sent as soon aspossible, and not later than onemonth after the delivery. Theexceptions are:

VAT eligible businesses mustinvoice the same year as the

delivery takes place.Pre-invoicing is normally not

allowed. However, there areexceptions for licences, rent andsimilar services. Such services maybe pre-invoiced (and pre-paid)within the actual year.

RemindersWhen an invoice is overdue, you

should send a reminderimmediately. Getting paid forservices sold is one of the key

6. Invoice Your Sales Quickly and Correctly

Type ofgoods/services

Deadline

Monthly deliveries Fifteen working days into thenext month.

Running services,e.g. auditorservices, legalservices, etc.

One month after theordinary VAT deadline. E.g.auditor services rendered inJanuary and February mustbe invoiced by 31 March.

Electricity,telephone bills andother types ofinvoices based onreal consumption

Not later than one year andbefore 31 December

Tenders Invoiced in accordance withthe contract, unless theprogress deviatessignificantly from the plans.


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factors determining if the businessis a success or not. The rules for

reminders (and legal recovery of thedebts) are listed here .

Cost of credit timeOver the last few years there hasbeen a significant increase in thenumber of legal recoveries of debts.One of the reasons is that thecustomers try to stretch the credit asfar as possible at the sellers'expenses. If, for instance, thebusiness has an agreed overdraftcosting 9% and the value of thecredit sales is NOK 4 million, thena reduction of the credit time by 20days will mean an extra income of NOK 20 000.

Hints about invoicing routines:

Write the invoice the same day as you

deliver the goods/servicesMake sure the invoice is completeand fulfil the requirements

Be aware of differing VAT rates

Spend time on debt collection
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The legal minimum accordingto the Bookkeeping ActThe petty cash must be counted andbalanced every day.

Normally you are personallyresponsible if deviations cannot bereasonably explained.

The balancing is a calculationexercise that shows the relationshipbetween the daily turnover and thecounted cash. Note that the exercisemay turn unnecessarily complicatedif the cash register is used foradvances, buying goods andpersonal withdrawals.

How to balance the cashUse two registers: The cash registerwhere the daily cash turnover iskept and one petty cash box fromwhere you pay the business' billsetc.

The petty cash box is used forpaying small bills. You may, forinstance, start with NOK 2 000 inpetty cash. When you pay the smallbills with cash from the box, thecontents consisting of cash and

receipts (vouchers) will alwaysequal NOK 2 000.

ReceiptsMake sure you always receivereceipts for all your expenses. If forsome reason you do not have areceipt, write an explanationindicating what the money is usedfor and other information necessaryfor the accounting.

The petty cash box must bebalanced at least every accounting

period to make sure the vouchersare accounted in the correct period.

If the petty cash box contains NOK10 and receipts for NOK 1 990, youmust withdraw exactly NOK 1 990(from your bank account). Themoney is placed in the petty cashbox and the receipts/vouchers areattached to the withdrawal voucher.The withdrawal voucher is placed inthe vouchers' file.

Remember to get your company'sname on receipts amounting tomore than NOK 40 000 and onreceipts for goods bought forfurther sale.

Make it a rule that all personalwithdrawals and advances to theemployees are paid from the bank account. Keep the cash payments ata minimum by asking for monthlyinvoices on running expenses suchas petrol, office accessories,foodstuff, computer accessories,etc.

Register all sales in the cashregisterRegister all sales immediately. If you operate as a hairdresser, run abusiness serving foodstuff or run anaccommodation business, there areadditional rules as to how the salesmust be specified.

Businesses obliged to bookkeepingand selling from non-fixed locationsor just handle sporadic cash salesthat do not exceed three times thebasic value of the public pensionscheme 1 during one accountingyear, are not obliged to registersales in cash registers. Instead, suchbusinesses may either register sales

1 The basic value is referred to as "G"

(grunnbelp) in Norway. The value isdetermined by the Parliament(Stortinget) on an annual basis.

in a hardback book (register) withpre-numbered pages, or by keeping

copies of pre-numbered, datedreceipts or sales documents. Casualsales to for instance the audience ata sports event or a concert may bedocumented by a single daily sumfrom each sales person. It is notnecessary to give the customersreceipts.

Cash sales are deposited inthe bank

Cash received by sales aredeposited in the bank regularly,preferably on a daily basis. Thebank may offer night safearrangements.

7. Balancing the Cash


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Count and balance the cashregister every dayProduce a daily report from the cashregister and count the petty cash.The daily report (called Z-report)must be dated, signed and the timeof writing the report must beidentified. In most instances thebusiness starts the daily businesswith a fixed sum, for instance NOK3000 in petty cash.

The balancing will for instance look like this:

The balancing of the cash isregistered in a form. Use one formfor each day. The forms are datedand signed by the persons whocounted the cash.

The daily report from the cashregister and the bank transferpayments together with a copy of the night safe receipt are attached tothe form. The forms are filedconsecutively in the correct folder

and correct section of the folder.Use a front page indicating cash.

If the profit/deficit exceeds NOK 50frequently, you must re-evaluate the

procedures with the employees.Remember that expenses are paidfrom the petty cash box. The marginfor errors is reduced if the cashregister calculates the change.Significant differences betweencalculated and real amount of cashmust be registered in an account.

Further information:Regnskapsloven (The AccountingAct - in Norwegian)Sample Cash Register Daily Report

Tips and hints:

Do not use the cash register foradvances, paying bills etc.

Keep a petty cash box for payingsmall bills etc

Keep track of profits/deficits whencounting the cash

Input amount 3 000 Transferred from yesterday

+Daily turnover (transferredto sales account)

10 000Registered in the dailyreport from the cashregister

- Bank transfer payments(to the bank account)

1 000Customers that paid withbank cards

= Calculated amount 12 000 .

- Counted amount 12 050 .

Deficit (+)

Profit (-)- 50

Put aside. Next day theremaybe is a deficit of NOK50.

Corrected amount of cash 12 000

- Deposit in the night safe(bank deposit) 9 000

Output amount 3 000
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Many entrepreneurs find that the real change in the accounting routines takes place when an employee enters the scene. At that time many will choose to hire external expertise, or they engage an accounting agency.

If you decide to handle payment of wages yourself, you have to followa rigid and fairly complex set of rules.If the employees only receive wagesand the tax deductions are standard,you may design a spreadsheet basedsystem to keep track.

As an employer you have theduty to deduct tax from the wagesand other types of compensationpaid to your employees. The taxrate is listed in the employee's taxcard. If you are employed by yourown limited liability company, youmust also deduct tax from your ownsalary.

Deduct tax from compensation suchas free subsistence (accommodationand meals), use of company car andpossible advantage from lowerinterest rate on loans from theemployer.

The employee must present a taxcard indicating the correct taxdeduction rate. If the employer doesnot receive a tax card, he mustdeduct 50%.

The amount deducted must bedeposited in a tax deductions bank account. The money stays in that

account until paid to the local taxcollector's office. Alternatively, theemployer may secure the tax

deductions by a bank guarantee.The periodic record sheet showing

the deductions the former twomonths must be sent to the local taxcollector's office. The record sheet(form) is issued by the taxcollector's office.

Payroll taxIf you have employees, you mustpay payroll tax calculated from thewages and additional compensa-tions/allowances. If you areemployed by your own limitedliability company, you also have tocalculate payroll tax on personalwithdrawals (salary).

Calculation of the payroll tax isyour responsibility and you mustpay the amount to the tax collector'soffice every second month. Use thestandard form when the tax is paid.Payroll tax is paid from the ordinaryoperating bank account.

By the end of the year, theCertificate of pay and tax deductedis produced, one for each employee.These returns must be submitted tothe local tax collection office and tothe employees not later than 20January the year following theincome year. If submitted to theauthorities electronicallyby CD or diskette or viahttps://www.altinn.no , thedeadline is 31 January.

Spouse and childrenWhen both spouses areworking in a sole proprietorship, thenet profit from the business may bedivided and taxed according to eachspouse's contribution in the form of workload. Such income is notreported in the form of the standardwage and tax deductions return.

Wages and other compensation tochildren or adolescents working intheir parents' business must be

reported. In addition to the standardwage and tax deduction return, the

owner must fill in a form givingadditional information on the typeof work carried out. The form isavailable from the local taxassessment office. The same form isused both for sole proprietorshipsand limited liability companies.

Using an accounting agencyfor wage proceduresIf you have many employees, travelexpense sheets, insurance schemes,free company cars, free telephones,you may find it worth while to buysuch services from an agency. Thenyou also have a partner to whomyou may turn when other questionstouching employer/employeerelations arise. Common questionsare for instance holiday pay, leaveof absence, temporary lay-offs anddismissals.

The accounting agency must, by thedate agreed upon, receive a certifiedstatement indicating the basis forthe payment of the wages.

A sample statement:

Certified travel expense sheets areattached to the statement.Other expenses such as personalphone expenses that arecompensated must be certified bythe original bill or receipt, e.g. thetelephone bill.

8. Wage Procedures

Employee Wage Extra Advance Other

01 Hansen Regular . . .

02 Nilsen Regular Bonus5000 5000 .

03 Pettersen 20h x 150 . . .
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Payment of wagesOwners of small businesses oftenchoose to handle payment of wagesthemselves. Each period you fill ina simple form, one for eachemployee. You may use aspreadsheet template.

The employee and the accountingagency must receive copies of the

wage payment forms. Then youmust send the transfer orders to thebank.

The accounting agency may handleall aspect of the wage procedures,e.g. register and update theaccounts, produce and submit theperiodic record sheets, fill in andsubmit the tax deductions andpayroll tax giros and of courseproduce the Certificate of pay and

tax deducted.Likewise, the business may

carry out some of the tasks and theagency others; it just depends on thearrangements between the businessand the accounting agency.

When you prepare wagepayments yourself, but engage theaccounting agency to handle allreporting and dealings with theauthorities, you have in effectoutsourced so much you might just

as well let the agency do it all.

Travel and subsistence claimsThe employees do not automaticallyhave the right to be compensatedfor travel expenses according to thestandard used by the authorities(state regulative or in Norwegian:Statens regulativ ). The rate of

compensation is eitherdetermined by theemployer or regulated in anagreement between theemployer and employee,alternatively between theemployers' association and

the trade union. However,the state regulativedetermines what and howmuch of the expenses thatare exempted fromtaxation.

Even if you compensateaccording to the stateregulative, thecompensation must be

included in the Certificate of payand tax deducted.

If the travel subsistence claims formdoes not give necessary informa-tion, the recipient (employee) riskshaving to pay tax for all expenses.

The travel subsistence claims formshould include the following:

The name of the employer.The name, address, personalidentity number and municipality towhich taxes are paid.Date and time for departure andreturn arrival.The purpose of the travel.The name and address of theaccommodation (hotel). Also adddates if several hotels.Type of accommodation, e.g. hotel,pension or private lodgings.Travel route.Total distance by (own) car.

All costs (e.g. airplane fares, taxis,accommodation, meals, etc.)

The signature of the employer andthe employee.

The Ministry of GovernmentAdministration and Reform suppliescurrent rates and even a program forproducing the travel subsistenceclaims form. However, both theprogram and corresponding formare in Norwegian only.

Be precise with respect toinformation on accommodation. If you spend the night in private

lodgings you have to use the mealsrate for such accommodation, butyou can claim the overnight staycompensation. A day is defined asthe time of departure plus 24 hours.Note that you can claim subsistencefor two days if the travel extends 6hours into the second day.

The owner of a sole proprietorshipcannot claim travel subsistencecompensation the same way

employees can. He/she must certifyall expenses by receipts. However,the proprietor receives tax relief forthe company's use of his/her privatecar.

Note:

Employers have to report pay and taxinformation regarding the employees

to the authoritiesStrict rules apply for travel andsubsistence claims

Owner of a sole-proprietorship needsto certify all expenses by receipts

Name of employee:

Pay day:

Payment for the period: ................... to ....................

Wage:

- Tax deduction:

= Net wage:

Wage transferred to bank account no: 1234.56.7890

Tax deduction transferred to bank account no: xxxx


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The Bookkeeping Act 11 statesthat the Annual Accounts mustspecify all balance sheet items,unless they are considered insigni-ficant. An item that is significant for many businesses is the

inventory. Consequently, thebusiness owner must count theinventory (stock) he/she possessesby 31.12.

Depending on the size of theinventory, counting may be a timeconsuming exercise. However,sound stock control methods maysave you time. Consider whencounting can be carried out,especially with respect to running

business and opening hours. If theshop keeps open, it may be difficultto keep track of goods taken fromthe stock while counting is inprogress. Many will therefore prefercounting after opening hours orduring the first weekend or holiday.Nevertheless, the count mustcoincide with the closing of theaccounting year, i.e. 31.12.

The counting must be documentedby record sheets, re theBookkeeping Regulations 6-1 (inNorwegian).

The record sheets must showspecified lists of the stock items,quantity and value of each item, andthe sum for the specified assets. Insome instances, one distinguishesbetween accounting and taxassessment values, which maydiffer. However, bookkeepingeligible businesses according to the

Bookkeeping Act 2 may providethe tax assessment values only. Thetaxation legislation does not allow

write-down of the inventory due toprice reduction or old stock

considerations, but such write-downmay be carried out in the annualaccounts if deemed correct from abusiness economics perspective. Insuch cases, the value of theinventory listed in the annualaccounts will differ from the taxassessment value.

Things to remember:

Plan the inventory counting

well in advance, and tidy up thestore rooms.Produce the record sheets fromthe inventory system and makesure all types of goods areincluded.Produce stock controlguidelines if more than oneperson is involved.Use pre-numbered recordsheets, alternatively, use a stock control book.Make sure to know at all times

what is already counted.List all items, including the oldstock.Be meticulous about the timingof the counting:- If counting is done before

31.12, remember to addgoods received betweencounting and 31.12.

- If you count after 31.12,subtract goods boughtbetween 31.12 andcounting.

- Note that only goodsbought and not sold by31.12 are included.

The record sheets must be datedand signed by the person whoperformed the counting.The goods are normally valuedat acquisition price (price of goods plus possible cost of purchasing).In manufacturing enterprisesthe inventory is divided intoraw materials, semi-manufactured goods, goods in

manufacturing process andfinished goods.The record sheets are vouchersthat must be stored for 10 years.

Sample Stocktaking Record Sheet .

9. Stocktaking Why and How
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accounting guide[1]

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