Bookkeeping and accounting

Accounting sounds boring right up until it saves you — at the tax return, in a meeting with the bank, or the day you want to sell the company. Good accounting starts with understanding two obligations that are often confused: the bookkeeping obligation and the accounting obligation.

Bookkeeping obligation vs. accounting obligation

The bookkeeping obligation (bokføringsplikt) means you must record all financial transactions on an ongoing basis, with a voucher documenting each one. Almost everyone who runs a business has a bookkeeping obligation — both ENK and AS. The rules are set out in the Bookkeeping Act.

The accounting obligation (regnskapsplikt) is something more: the duty to prepare a full set of annual financial statements (årsregnskap) under the Accounting Act and to file them. An AS always has an accounting obligation. A small ENK usually has only a bookkeeping obligation, not a full accounting obligation, unless it passes certain size thresholds. The difference matters: bookkeeping is about ongoing order, while the accounting obligation is about the formal annual reporting.

Vouchers, posting and order from day one

The core of good bookkeeping is simple: every krone in and out must have a voucher. A voucher is the documentation — the receipt, the invoice, the bank statement — that shows what happened. Without a voucher you are not allowed to record the cost, and you may lose the VAT deduction.

The transactions are posted (kontert), that is, placed on the correct account in the chart of accounts (sales, purchases, salary, and so on). Vouchers must be kept for the period the law requires. The single most important piece of advice is to keep order from the first day and never mix private and business: then both the tax return and the VAT settlement become far simpler, and you avoid hunting for receipts six months later.

Annual accounts — what an AS must file

An AS must prepare annual financial statements (årsregnskap) every year and send them to the Register of Company Accounts at the Brønnøysund Register Centre by the deadline after the end of the financial year. If you file late, a late fee applies that increases over time. Small companies can use simplified rules, and many small companies can opt out of an audit if they stay below certain limits — but that is a decision to be made consciously. In addition, a tax return with a business specification is filed, which we return to in the tax lesson.

Profit is not the same as money in the account

A trap many people fall into is confusing profit and liquidity. The accounts are kept by the time of recording, not when the money actually moves: an invoice you have sent counts as income even if the customer has not yet paid, and a purchase is a cost even if you pay later. You can therefore show a profit on paper and still be short of money in the account — for example because customers owe you, or because VAT and tax are due soon.

The solution is to watch both: the profit tells you whether the business earns money over time, while a simple liquidity overview tells you whether you have enough cash to pay what is falling due. It is wise to set money aside for VAT and tax on a separate account, so you avoid spending what is really meant to go on.

Accountant or do it yourself?

You can keep the accounts yourself in a modern accounting system, or outsource them to an authorised accountant. Doing it yourself is cheapest and gives good insight into your own numbers, but it costs time and requires that you understand the rules. An accountant costs money, but saves you from mistakes, deadlines and frustration — especially for an AS with salary, VAT and annual accounts. A common middle path is to keep the books yourself on an ongoing basis and let an accountant quality-check and file the annual settlement.

Do this now

Establish which obligations apply to your form: do you have only a bookkeeping obligation, or also an accounting obligation? Then choose how you want to handle it — your own system or an accountant — and set it up now, before the vouchers start piling up. Create a fixed routine for gathering and recording vouchers, for example one set day a week.