SAF-T. Increases of expenses through decreases of assets?

In the last articles, we wrote about the equation of accountancy in balance sheet and the equality which must be between active and passive after every operation made by a company.

In the part of active, in the left side of the equation of accountancy, are all the assets at the disposal of the company who issue the balance sheet like intangible assets, fixed assets, financial assets, stocks in different forms (raw materials, work in progress, finished products, commodities), rights from receivables and from the other operations made by the company, and money in different forms like cash or equivalent of cash.

In the part of passive are two components:

- the first component contains the obligations of the company to others, apart from shareholders, classified as liabilities.

?- the second component includes all the obligations of the company to the shareholders, classified as their own capital (equity).

Through the obligations to others, classified like liabilities, we understand obligations at: suppliers, creditors, employees, budget, etc.

Through their own capital, in fact we understand the obligation of the company to the shareholders if the company ‘close the doors’, and shareholders will take the wealth of the company, proportional with number of shares detained.

At the same time, we mentioned that revenues and expenses are not presented as individual parts in the balance sheet, and we can’t identify the nominal value of revenues and expenses in any components of balance sheet, assets, liabilities or own capital. But we establish that revenues and expenses are in the right side of the equation of accountancy at own capitals and centralization of revenues and expenses is made in the account ‘Profit and losses.’ (account 121 according with accountancy framework from Romania, Order 1802/2014).

If the company obtains profit the account balance for the account ‘Profit and losses’ will be creditor, which means that revenues are bigger than expenses.

If the company obtains loss the account balance for the account ‘Profit and losses’ will be debtor, which means that revenues are smaller than expenses.

We also propose an exercise of visualization related with the balance of the account ‘Profit & losses’ presented in balance sheet at own capitals and how can we see in the part of credit all the revenues and in the part of debit all the expenses of a company from a fiscal period.

Every company to realize its object of activity it’s necessary to obtain revenues and we approach in the last article the possibilities through can increase the revenues, one through the increases in assets and the other through decreasing in liabilities.

To obtain revenues a company need resources: materials, humans, financials. The everyone of the resources comes with a cost on which the company must pay to obtain the access at these resources. The consummated resources in a fiscal period represent the expenses of the company.

What represent the expenses of a company according with the accountancy framework used by the most companies from Romania, Order 1802/2014?

At point 19.2 b) from Annex at Order 1802/2014 is written the following definition:

‘The expenses represent decreases in the economic benefits registered in the period of report in the form of outflows or decreases in the value of assets or increases in liabilities, which take the form of reductions in own capitals, other than those resulting from their distribution to shareholders.’

The purpose of the article is to see ‘the patterns’ in what why appear the expenses in equation in accountancy, more precisely in the own capitals (equity) and to see what is the correlation between expenses and one component from equation of accountancy, assets.

At the same time, we want to identify what kind of documents sustain the operations for recording in accountancy and what sections, subsections from Standard Audit File for Tax (SAF-T) are influenced by these operations.

All the accounts of expenses have function of ‘active’ and begin through debiting, exception is just account 609 ‘Commercial discounts received’ which has function of ‘passive’ and begin through crediting.

Because this is the general rule that the accounts of expenses begin to be debited, we want to see what kind of correspondent accounts we have in the part of credit.

So, the ‘frame’ for the apparition of the expenses is through reduction in assets and increases in liabilities.

Let us approach what we said that is the purpose for this article, the correlation between expenses through reduction of the assets.

Where we find the assets?

We mentioned that in the left side of the equation of accountancy, at active, are all the assets at the disposal of the company like intangible assets, fixed assets, financial assets, stocks in different forms, rights from receivables and money in different forms like cash or equivalent of cash.

How can increase expenses through decreases of assets like intangible assets, fixed assets, financial assets?

The general rule established that intangible assets and tangible assets are recorded in accountancy at the cost of acquisition or cost of production for assets which are generated internally at the level of company.

Because in the balance sheet intangible assets and tangible assets are presented at the difference between cost of acquisition or production and amortization calculated until the date of balance sheet, the amortization is included on the expenses of the company (accountancy records 681=280, 681=281, according with the Order 1802/2014).

?For all categories of intangible, tangible and financial assets, we must constitute impairments if there is a difference between the value recorded in accountancy and the value of the market is a positive difference (value recorded in accountancy is bigger than the value of the market). The impairments have the role to bring the value of the asset at the value of market, according with the principle of prudence (accountancy records 681=290, 681=291, 681=293, 686=296, in compliance with the Order 1802/2014).

What document stay at the base of recording in accountancy expenses with amortization and impairments? Accountancy notes (code14-6-2A, according with Order 2634/2015 from Romania).

In what sections can we see the influence of amortization and impairments in SAF-T? In section General Master Files, subsection General Ledger Accounts and subsection Assets, and in section General Ledger Entries.

What other categories of assets do we mention in the part of active?

Stocks in different forms like raw materials, consumable materials, work in progress, finished products, commodities.

How can we have an increase in expenses through the diminution of the stocks?

To all the outs which are made through consume of raw materials and consumable materials, sale of commodities, donation, lack of inventory (accountancy records 60x=30x, 60x=37x, 658=30x, 658=34x, 658=37x, in compliance with the Order 1802/2014).

Like in the case of intangible, tangible and financial assets when the accountancy value of the stocks is bigger than the value of the stocks at the price of the market it’s necessary to constitute impairments through the accounts of expenses (accountancy records 681= 39x in compliance with the Order 1802/2014).

Because the accountancy framework from Romania is based on the accountancy of engagement, which involve the recognize in the accountancy of revenues and expenses when the operations made, not when the cash received or paid for work in progress and finished products is used bifunctional accounts from group 71 ‘Revenues related to the cost of production in progress’.

So, the debit of accounts from group 71 ‘Revenues related to the cost of production in progress’ function like an increase of expenses for work in progress and finished products (accountancy records 71x=33x, 71x=34x).

What documents stay at the base of recording in accountancy expenses for consumption of stocks? Consumption voucher and ‘delivery, transfer, return voucher’. (code 14-3-4A, and code 14-3-3A according with Order 2634/2015 from Romania).

But for impairments at stocks? Accountancy notes (code14-6-2A, according with Order 2634/2015 from Romania).

In what sections can we see the influence of consumptions of stocks and impairments of stocks in SAF-T?

In section General Master Files, subsection General Ledger Accounts and subsection Physical stocks, in section General Ledger Entries, and in section Source Documents, subsection Movement of goods.

What other categories of assets remain for our analysis?

Rights from receivable and rights from other debtors.

How can we have an increase in expenses in correlation with a decrease in the accounts of receivables?

We know that usually the accounts receivables are associated with the accounts of revenues. So, can we have an increase of expenses in correspondence with the accounts of receivables?

When?

Only in the situation when we appreciate that our collection can’t be made at the value recorded in accountancy and according to the principle of prudence, we must constitute impairments with the value we can’t collect. ?(record 681=491). At the same time can be situations in which we ‘erase’ our right from accountancy. [For example, if our debtor is in bankruptcy and our right wasn’t admitted at insolvency proceedings, accountancy records 654=411 in compliance with Order 1802/2014].

What documents stay at the base of recording in accountancy expenses in correlation with reductions at receivables?

The accountancy notes and inventory lists (code14-6-2A and code 14-3-12, according with Order 2634/2015 from Romania).

In what sections can we see the influence of expenses in correlation with the reduction of receivables in SAF-T?

In section General Master Files, subsection General Ledger Accounts and subsection Customers, and in section General Ledger Entries.

What other assets remain for our analysis?

Money in different forms.

How can we have an increase in expenses in correspondence with a decrease of money?

For example, in the case of minus at inventory for cash in house (account 5311 ‘House in lei’) we must correct the minus through an account of expense (accountancy record propose according with Order 1802/2014, 658= 5311).

What document stay at the base of recording in accountancy expenses for a minus at inventory for cash? Inventory list (code 14-3-12, according with Order 2634/2015 from Romania).

In what sections can we see the influence of minus in cash in SAF-T?

In section General Master Files, subsection General Ledger Accounts, and in section General Ledger Entries.

What other examples do we have for an increase in expenses in correspondence with a decrease of money?

In accountancy framework from Romania, Order 1802/2014, are presented models for recording in accountancy through a debiting of an account of expenses in correspondence with an account of cash or equivalent of cash, for the payments made by a company at the moment of performing of the service by our suppliers [accountancy records 61x=531, 61x=521, 62x=531, 62x=521).

We express our opinion that all the time when we have a relationship with a supplier it’s necessary to use accounts of liabilities in credit first and then extinguish of this obligation to be made through crediting of an account of cash or equivalent of cash (accountancy records 61x=40x, 62x=40x, and then 40x=53x, 40x=521). The arguments for this opinion were described in the article ‘Respect the accountancy framework, the principles of accountancy?’ [ LinkedIn]

What other accounts can be seen like an increase of expenses in correspondence with a decrease of an account of assets?

If the company on which we make the analysis, make a reduction at a customer after the moment when were made delivers of goods, what influence has this reduction at the value recorded in receivables?

Can we collect the sum from receivables at initial value recorded in accountancy?

Of course, that it’s necessary to correct the sum which was recorded initially like receivables. How can we do this? Through crediting of the account of receivables. But in correspondence with what account in debit?

For reductions granted at our customers, the accountancy framework from Romania, Order 1802/2014, use the account 709 ‘Commercial discounts granted’. Even though this account is from class 7, like all the accounts of revenues, its function is different because begins through the debiting, in comparison with all the accounts of revenues which begin through crediting.

So, the debit of the account 709 has the role to function like an expense through we reduce our right from receivables (accountancy record 709=411 in compliance with Order 1802/2014).

What document stay at the base of recording in accountancy for a reduction made at our customer after the moment when were made delivers of goods?

Invoice with minus sign.

In Romania, the rules regarding an invoice are presented at article 319 ‘Billing’ from Fiscal Code.

In what sections from SAF-T can we see the influence of an invoice for a reduction granted at our customer?

In section General Master Files, subsection General Ledger Accounts, subsection Customers, in section General Ledger Entries, and in section Source Documents, subsection Sales invoices.

Because we establish that in this article we will approach only the increases of expenses in correspondence with reductions of assets, we can extract conclusions from the analyses like:

-the expenses are found in the right side of the equation of accountancy like part of account ‘Profit and losses’;

- the account ‘Profit and losses’ is component of own capitals;

- the increases of expenses have in correspondence decreases of assets or increases in liabilities.

- the increases of expenses in correspondence with the decreases of assets can be made through all the accounts of assets like: intangible assets, tangible assets, financial assets, stocks in different forms, receivables, cash and equivalent of cash;

- every operation is made through a supporting document, which stay at the base of record in accountancy.

- the supporting document for every operation is established by regulatory body which issue the accountancy rules.

- every operation and the document who stay at the base of operation has different impact in sections and subsections from Standard Audit File for Tax (SAF-T).?

- the common sections from SAF-T in which every operation has impact are section General Ledger Entries, and section General Master Files, subsection General Ledger Accounts.

In the next article we will approach the correlation between expenses and the obligations of the company to others, apart from shareholders, classified as liabilities.

PhD Serju Dumitrescu

Bibliography:

1.??? Order 1802/2014- REGLEMENTARI (A) 29/12/2014 - Portal Legislativ (just.ro)

2.??? Order 2634/2015- ORDIN 2634 05/11/2015 - Portal Legislativ (just.ro)