These instructions provide general information on accrual.
The company’s business transactions can be accrued using different methods:
- Monthly from the beginning of the year
- Once per fiscal year, such as after 6 or 10 months, to anticipate the profit (loss) for the fiscal year
- Until the end of the fiscal year
- Only at the time of drawing up the financial statements.
You can accrue all transactions from a certain period or, for example, only the business transactions that exceed a specified EUR limit.
Read more on Procountor’s Accrual tool.
Procountor aims at providing the owners and management of companies with reports to support decision-making. Monitoring cash flow is thus at least as important as monitoring profits.
It is unnecessary to accrue insignificant income and expenses. You should always compare the improvement in information quality to the amount of work incurred from accrual, even if it is extensively automatised. Overly detailed accrual can often hinder more than help the monitoring of business profitability, since the contents of deferred items can be difficult to explain to persons other than professional accountants. In particular, you should not accrue regular costs such as insurances, banking charges or parking permits.
For small companies, the requirement for accrual is frequently based more on fear of the view taken of the company’s accrual practices by tax inspectors than on actual need for information. A properly conducted tax inspection will approve any consistently applied accrual practice, all the more so since accrual has no impact on the amount of payable taxes. When the tax rate is the same, accruals only affect the year for which the tax must be paid.
Purchases entered as annual costs
The upper limit for minor purchases has been set at EUR 840 by the Finnish Tax Administration. An additional limit specifies that only EUR 2,522 of such purchases may be entered as costs per year. This regulation is unnecessarily bureaucratic, but we must live with it. An excessively strict interpretation in line with the Finnish Tax Administration’s interests will lead to excess, such as activating the purchase of suitcases, coffee makers, etc. into fixed assets. This means that, although such purchases must be paid immediately, they could only be deducted from taxes over a period longer than the average company’s lifetime. After 10 years, 7% of the coffee maker’s price would still remain undeducted. An even worse example is the activation of minor building repairs. For example, 25% of an activated ceiling paint job would remain undeducted after 20 years.
Companies should therefore approach purchases by considering whether their economic service life will be more or less than three years. In borderline cases, the expenditure must be entered as a cost. Entering mobile phones, for example, immediately as costs is easily justified, since their service life rarely exceeds three years. One might still use a three-year-old computer, but the rapid development of software versions in our networked world renders computers obsolete all too quickly. For this reason, entering computers and software as costs can be easily justified to the Finnish Tax Administration. Activating updates and IT supplies in particular represents unnecessary and even detrimental caution. Such excessive caution will lead to premature tax payment and a weakened cash flow.
Office furniture represents a borderline case. In small companies, they are often easily accommodated as small furniture entered into annual expenditure due to their low value, even if they are kept for more than three years. The fair value of a desk after three years is only a few euros, and this is known by all buyers of used furniture from companies.
Monthly profit (loss)
The shorter the fiscal period, the greater the uncertainty. For this reason, it is not sensible to calculate profit or loss for a single month. More than the accrual practice, the profit or loss of a month is influenced by the calendar dates of weekends, the timing of individual income items, and delays of a few days in the processing of sales and purchase invoices by business partners. Factors such as the dates of signing long-term agreements, etc., may also skew the calculation.
Regardless of profit or loss, the turnover of even quite short periods can have an impact on the decision-making of many companies. For this reason, you can use reporting selections in Procountor to determine the sales of individual months, the Christmas season, the summer holiday period, etc.
Salary calculation in Procountor has been implemented to automatically accrue all insurance payments tied to salaries by month. Using entry and service periods, salary slips can be accrued to a different month than the month of salary payment. The salary slip will not accrue holiday pay, however.