Introduction to bookkeeping
What exactly is bookkeeping, and why do you have to do it? Bookkeeping is largely about documenting a company’s business events in a structured way. This is to form a basis for taxation, as well as for the company itself to be able to analyze reports in order to be able to make decisions about its operations. An important part of this is that the accounting must be able to be understood and reviewed by an outsider, and that is what the Accounting Act sets up a framework for. For example, there must be written evidence, so-called verifications, for all business events, and the accounting records must be archived in order to be audited afterwards.
What is bookkeeping and why is it important?
Bookkeeping is the process of recording and classifying financial transactions systematically to create a clear picture of a company’s financial position. It helps companies keep track of their income and expenses, assets and liabilities, and cash flows. Correct accounting is important for several reasons:
- Taxation: The Swedish Tax Agency uses the reports from the accounting that are declared to determine how much tax a company should pay.
- Compliance: Companies in Sweden are obliged by law to keep correct and transparent accounting. Failure to comply may result in fines and penalties.
- Decision making: Proper accounting provides businesses with insight into their financial position, enabling them to make informed decisions about their operations and future plans.
What is debit and credit?
These terms are simply the accounting geeks’ way of saying plus and minus. However, what plus and minus mean is not always logical to outsiders. Debit increases a cost, but at the same time reduces a debt. If you pay SEK 1,000 for advertising, the accounting account for your bank account is credited with SEK 1,000, and the advertising expense account is debited with SEK 1,000. If you receive a payment for an accounts receivable of SEK 5,000, the bank account is debited with SEK 5,000, and the accounting account for accounts receivable is reduced by the same amount.
Laws and regulations that apply to accounting in Sweden
Sweden has strict laws and regulations that apply to accounting to ensure that companies comply with tax laws. Some of these rules include:
- Vouchers: All business events must be documented with vouchers that clearly describe the business events.
- Bookkeeping frequency: The law governs how often the business events must be accounted for. How often depends on the size of the company. Companies with a turnover of less than three million SEK, and which have more than 50 vouchers to book per year, for example, need to complete the bookkeeping no later than 50 days after the end of the quarter in which a business event took place.
- Archiving: Swedish law requires companies to archive their accounting for at least seven years. This includes invoices, receipts, bank statements and other financial documents.
- Accounting principles: Companies in Sweden must follow Generally accepted accounting principles (GAAP) when accounting for financial transactions. These principles ensure that financial statements are accurate, consistent, comparable and understandable to both the company and its stakeholders.
- Audit obligation: Some companies in Sweden must undergo an annual audit by an authorized auditor. This is to ensure that the financial statements accurately reflect the company’s financial position and comply with accounting rules.
It is important for companies to stay up-to-date on any changes in Swedish tax laws and regulations that may affect their accounting. If you work with an accounting consultant, they can inform you about changes that affect your business.
Learn more about this in our article about laws and regulations that apply to accounting.
Best practice for accounting in Sweden
Maintaining accurate records is critical to business success. Here are some recommendations to help businesses maintain accurate records:
- Use accounting software: Using accounting software can make accounting more manageable and efficient, and it’s practically a legal requirement nowadays. There are many accounting programs available in Sweden and they can be customized to meet the specific needs of a business.
- Reconcile bank accounts on an ongoing basis: Regularly reconciling bank accounts ensures that the books accurately reflect the company’s financial position. Almost all business events include transactions in the bank account, so if the bank is reconciled, you know that at least most of the current accounting is done.
- Follow good accounting practice: It is not enough to just record all business events and make the math work out, the bookkeeping also needs to follow good accounting practice. By following generally accepted accounting principles, it is ensured that financial reports are fair, consistent, comparable and understandable for both the company itself and for the company’s stakeholders.
- Stay up-to-date on tax laws: Companies must keep up-to-date on any changes in Swedish tax laws and regulations that may affect their accounting. This ensures they remain compliant with the law and avoid costly mistakes.
In summary, bookkeeping is crucial for all companies in Sweden. Correct accounting forms the foundation for taxation, compliance and decision-making. Understanding basic concepts such as debit and credit, complying with laws and regulations, and keeping accurate records are crucial for business success. By following best practices and staying up-to-date on changes in Swedish tax laws and regulations, companies can minimize their tax liabilities and avoid costly penalties.