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 the early stages, getting sound routines and systems for your accounting:

• Find good collaboration partners
  
• Design a sound chart of accounts
  
• Consider which reports you will require
  
• Devote some time to the accounting every day
  
• Keep up to date and maintain the overview: Then you will know if you are on the right course.
  
  
  

Handle the accounting yourself?

If you feel for it and possess the necessary competence, you may consider doing the accounting yourself. At least in the early phases of the business' existence, that may be a reasonable and inexpensive solution. Bookkeeping will give you insight and close relations to the "inner life" of the business. Nevertheless, you should seek assistance from a licensed accountant (see further info) or auditor to help you design the chart of accounts and establish the proper bookkeeping routines.

When the enterprise expands, people are employed or the business grows in other respects, you should consider engaging an external accountant, e.g. an accounting agency or employ one.

A note on the accounting legislation

The Norwegian accounting legislation consists of two different acts regulating statutory reporting and registering of financial information. The acts are called the Accounting Act (Regnskapsloven) and the Bookkeeping Act (Bokføringsloven). Bookkeeping is defined as registration of transactions and other dispositions that directly affect the assets, liabilities, equity, income or costs in the accounting system.

Whether the enterprise must consider both acts or only the latter, depends on the type of business in question. The standard terms that are used are "bokføringspliktig" (obliged to bookkeeping on a regular basis) and "regnskapspliktig" (obliged to both keep the books and prepare annual accounts).

Important accounting terms

Some terms are vital when accounting is considered. In order to do the accounting yourself, you should know the "lingo":

• Account: A place to register and systemize accounting data. Transactions of identical nature are filed in the same account, e.g. costs of goods sold are always filed in the Costs 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 are two types of accounts, the revenue (turnover) accounts and balance sheet accounts. The account number normally consists of four digits.
  
• Debit / credit: An account has normally two sides; the left hand represents debit and the right hand side credit. Entering data in the debit side is called debiting and in credit crediting. This principle may be illustrated with a T-account, i.e. a visual representation of an account where both the debit and credit sides are shown simultaneously,
  
• Account balance: Shows the net effect of all data entered into an account at a given point in time. The account balance is the sum of the balance transferred from the previous period and the net effect of all transactions in the current period. The overall balance or general ledger (in Norwegian saldobalanse) is a list of all accounts showing the respective account balances at a certain point in time.
  
• Double-entry bookkeeping: The principle is that all transactions are entered twice, i.e. each transaction results in at least one account being debited and at least one account being credited, with the total debits of the transaction equal to the total credits.
  
• Closing of accounts: The overall result is the sum of the account balances of all revenue accounts. A profit in the period means an increase in the business' equity, while a loss causes reduced equity.
  
  
  

If you intend to do the bookkeeping yourself, you should master these tasks:

1. Enter the account number on the vouchers. The actual task is called entering (in Norwegian kontering) and means assigning the voucher to accounts for bookkeeping in the accounting system.
   
   
2. Decide on how to treat purchases with respect to value added tax (VAT). The VAT rates differ according to types of products/services. Input VAT that cannot be documented by vouchers is not deductible.
   
   
3. Determine if an expense incurred by an employee in the course of her/his work must be included in the periodic record sheet, i.e. in the reporting of tax deductions and payroll tax.
   
   
4. Determine if major purchases of machines and furniture/fixtures should be capitalized or regarded as operating expenses. The general rule is that fixed assets are entered in the balance sheet accounts at the time of purchase.
   
   
5. On the other hand, minor (insignificant) purchases may be treated as operating expenses. In accounting there is no specific limit for choice of one or the other method. However, when it comes to taxation, the criteria are well defined.
   
   
6. Enter the data into an accounting system. Note that the Norwegian Tax Authorities recommend that an ordinary spreadsheet, e.g. MS Excel, is not used as accounting system, with reference to the general bookkeeping principles concerning protection of the accounting material.
   
   
7. Work out the financial statement, i.e. the income statement plus balance sheet, for a limited period of time, normally every two months. It is important that income and expenses are entered in the correct period.
   
   
8. Specify purchases and sales on the respective creditors' and customers' ledgers (in Norwegian reskontro). Such ledgers are intermediary accounts between supplier and customer (and vice versa). When an invoice is received, the data is entered in the accounting system on the actual date of reception. It is debited an expense account and credited the creditors’ ledger. When the invoice is paid, the payment is credited the account for the bank and debited the creditors’ ledger.
   
   
9. Balance the accounts for bank, cash register and public duties/fees. All accounts in the balance must be documented.
   
   
10. Balance the customers' and creditors' ledgers. The transactions entered are compared with corresponding data registered by the customer/creditor.
    
    
11. Work out documents required by the local Tax Collection Office, the local Tax Assessment Office, the County Tax Office and the Brønnøysund Register Centre. Such documents include the periodic record sheet (reporting tax deductions and payroll tax), the annual tax return and corresponding income statement, the VAT Return and the annual accounts (financial statement).
    

Note that all your reporting duties are listed in The Register of Reporting Obligations of Enterprises’ web pages. You will find your duties by entering your enterprise's organisation number. If you have not obtained the organisation number yet, you will find the duties by entering

• the type of organisation (e.g. sole proprietorship, limited liability company, etc.),
  
• the industry sector
• and the number of employees.
  

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

You will surely manage, but …

To many people the tasks and obligations are considered acceptable. With some training, dedication and a sound accounting software you will probably manage most tasks. Ask experts when in doubt. Nevertheless, as a rule of thumb, spend your time on the tasks you master best and buy other services from reliable professionals. And accounting may turn out to be one such service.

The price is decisive to many entrepreneurs. Perhaps you will calculate a lower hourly price than the professional accountant. But do remember that the accountant will carry out the tasks much faster and probably more accurate than you do yourself. Also, you should value your spare time!

When engaging the accountant you should preferably choose one that also may serve as a consulting partner in handling the daily challenges. See more than one agency and seek advice from your bank, auditor and/or other enterprise.

The Act on Accounting by External Representatives contributes to better service from the professional accountants. All agencies should at least have one licensed accountant, with the proper education and experience. The Financial Supervisory authority of Norway (Kredittilsynet) supervises the licensed (authorized) accountants, and spot tests have revealed that the quality varies significantly.

The accountant is obliged to set up a written agreement stating the tasks he/she is responsible for and what tasks are expected to be carried out by you (as principal). In addition the agreement should list which reports to produce and when they will be submitted.


Keep the business’ and personal finances apart

It may prove an expensive and time consuming exercise to tidy financial matters where the business’ and personal finances are mixed together. A distinct division between the two is important in the daily work.

Open a separate bank account for the business. Pay all expenses related to the business from the business’ account.

What type of accounting system?

If you do the bookkeeping yourself, you need an accounting system (software). The Act on Bookkeeping lists a number of requirements to the system. It must for instance provide proper overview and be able to produce all reports required by the act. Homemade Excel-solutions tend to be complicated when you have to handle VAT and account ledgers.

The magazine PC World tests accounting systems frequently. To many small businesses some of these software packages are perfectly adequate. If you need a more complex system, you should contact several suppliers and ask for a price offer and a demonstration.

Ask someone proficient in accounting (such as your accountancy agency or auditor) to help you find the system most suitable to your needs. Also, it might be a good idea to choose a system that is widely used. Having someone to ask or assist you when the system breaks down after hundreds of vouchers are entered is valuable.

Make sure the system can produce all reports required by the act.