H1+2+3 - Belgische boekhoudwetgeving - Balans - Resultatenrekening.pptx

# Overview of financial and cost accounting This section introduces the fundamental differences between financial accounting and management accounting, detailing their respective purposes, regulatory frameworks, and the role of cost accounting in expense calculation. ### 1.1 Accounting: A Dual Perspective Accounting serves two primary functions: external financial reporting and internal management decision-making. #### 1.1.1 Financial accounting Financial accounting focuses on providing information to external users, such as shareholders, creditors, and the government, to aid in their decision-making processes. This type of accounting is legally regulated and must adhere to specific accounting standards. For Belgian companies, this means following Belgian Generally Accepted Accounting Principles (Belgian GAAP) or, for listed companies, International Financial Reporting Standards (IFRS). * **Purpose:** To prepare financial statements (balance sheet, income statement, notes) that present a true and fair view of the company's financial position and performance to external stakeholders. * **Methodology:** Legally regulated, requiring adherence to specific laws and standards (e.g., Belgian GAAP, IFRS). * **Users:** Shareholders, creditors, government agencies, suppliers, employees, customers. #### 1.1.2 Management accounting Management accounting, on the other hand, is focused on providing internal information to managers to support decision-making. It is not subject to the same stringent external regulations. * **Purpose:** To provide relevant information to internal managers for planning, controlling, and decision-making. * **Methodology:** Free choice of methods, tailored to the specific needs of management. * **Users:** Internal management. #### 1.1.3 Cost accounting Cost accounting is a crucial component that deals with the calculation of the costs associated with producing goods or providing services. It plays a vital role in both financial and management accounting by providing the data necessary for inventory valuation and for internal cost analysis. * **Purpose:** To calculate the costs of products, services, and other cost objects. * **Role:** Informs inventory valuation for financial accounting and provides cost data for management decision-making. ### 1.2 Stakeholders and Reporting Requirements Various external parties, known as stakeholders, rely on accounting information for their decisions. The legal framework dictates the preparation and content of financial statements. #### 1.2.1 External stakeholders * **Shareholders:** Decide whether to invest in the company. * **Suppliers:** Assess the company's ability to pay for goods and services. * **Government:** Determines tax liabilities. * **Creditors:** Evaluate the company's creditworthiness. * **Employees:** Gauge the company's stability and future prospects. * **Customers:** Assess the company's reliability as a supplier. #### 1.2.2 Regulatory framework * **Belgian GAAP:** For individual, non-consolidated financial statements of Belgian companies. * **IAS/IFRS (International Accounting Standards / International Financial Reporting Standards):** For consolidated financial statements of Belgian listed companies. ### 1.3 Fundamental Accounting Principles Every accounting system is built upon foundational principles that ensure the reliability and usefulness of financial information. #### 1.3.1 Basis assumptions * **Enterprise entity:** The business is treated as a separate entity from its owners. * **Continuity:** The business is assumed to continue operating indefinitely into the future. If there is evidence of impending closure, valuation rules must be adjusted. * **Consistency (or conservatism):** Accounting methods and principles should be applied consistently from one period to the next to ensure comparability. Changes are permitted only if they result in a more faithful representation, with full disclosure. * **Expression in monetary value:** All financial transactions must be quantifiable in monetary terms. In the European Union, amounts in financial statements are expressed in euros. #### 1.3.2 Recording of events Principles governing how financial events are recorded ensure accuracy and completeness. * **Supporting documents:** Every accounting entry must be supported by a dated document. These documents must be retained for a specific period (typically 7 years for documents with evidentiary value to third parties, and 3 years for purely internal documents). The tax authorities may require a 10-year retention period for supporting documents. * **Completeness:** All transactions affecting the company's assets, liabilities, equity, or results must be recorded promptly, faithfully, and in chronological order. * **Non-compensation:** Transactions should not be offset against each other. Debts and claims, costs and revenues, rights and obligations must be recorded separately, with limited legal exceptions. * **Matching principle:** Revenues and expenses must be recognized in the accounting period to which they relate, regardless of when cash is exchanged. This involves accruals for revenues and expenses that relate to future periods and deferrals for those that relate to the current period but have not yet been recorded. #### 1.3.3 Valuation principles These principles guide how assets and liabilities are valued in the financial statements. * **Individual valuation:** Each asset and liability, or group of identical items, must be valued individually according to valuation rules established by the company's management. These rules are disclosed in the notes to the financial statements. * **Prudence:** Financial statements should not overstate the company's financial position. Potential losses that are probable should be recognized, while potential gains are recognized only when they are realized. * **Objectivity:** Accounting records must be based on reliable and verifiable data, typically supported by documentation. Estimates made in the absence of documentation must be by authorized bodies. * **Relevance:** Financial statements must provide meaningful information that aids users in decision-making. The level of detail and the content of the financial statements should be adapted to the nature and size of the enterprise. #### 1.3.4 Reporting principles These principles ensure that financial reports are understandable and comparable. * **Periodicity:** Financial information must be reported at regular intervals, typically annually through the financial statements, to allow for assessment of the company's performance and position. * **Comparability:** Financial statements should be comparable over time for the same company and, to some extent, between different companies. This is achieved through standard formats and consistent valuation methods. * **True and fair view:** This is the overarching principle in accounting legislation. All other principles are intended to contribute to presenting a true and fair view of the company's assets, financial position, and results. ### 1.4 Accounting Obligations and Company Size The accounting and reporting obligations of an enterprise depend on its size, legal form, and whether it is publicly listed. #### 1.4.1 Enterprise entity and classification Enterprises are classified based on size criteria (annual turnover, average number of employees, balance sheet total) which determine their reporting obligations. * **Very small enterprises:** Subject to less stringent accounting rules, often using single-entry bookkeeping. Annual turnover (excluding VAT) must be below 500,000.00 euros. * **Small companies (including micro-enterprises):** Subject to double-entry bookkeeping and specific financial statement formats (abbreviated or micro-model). Criteria include exceeding no more than one of: 50 employees, 11,250,000.00 euros turnover, 6,000,000.00 euros balance sheet total. Micro-enterprises have stricter thresholds for employees (10), turnover (900,000.00 euros), and balance sheet total (450,000.00 euros). * **Large companies:** Subject to full accounting and reporting requirements, including the complete model financial statement. These are companies exceeding the thresholds for small companies. > **Tip:** The size classification determines the complexity of the accounting system and the level of detail required in the financial statements. Exceeding a threshold for two consecutive years typically triggers a change in reporting requirements from the following financial year. ### 1.5 The Financial Statements The financial statements provide a structured overview of a company's financial situation. #### 1.5.1 The balance sheet The balance sheet presents a company's assets, liabilities, and equity at a specific point in time. * **Assets (Werkmiddelen / Bezittingen):** Resources controlled by the company as a result of past events and from which future economic benefits are expected to flow. Classified as: * **Fixed assets:** Expected to be used for more than one year (e.g., intangible assets, tangible assets, financial assets). * **Current assets (Vlottende activa):** Assets that are part of the business cycle and expected to be realized within one year (e.g., inventories, receivables, cash). * **Liabilities (Financieringsmiddelen / Schulden):** Obligations of the company arising from past events, the settlement of which is expected to result in an outflow of resources. Classified as: * **Equity (Eigen vermogen):** The residual interest in the assets of the entity after deducting all its liabilities; represents the owners' stake. * **Non-current liabilities (Vreemd vermogen):** Obligations due beyond one year. * **Current liabilities:** Obligations due within one year. #### 1.5.2 The income statement (Resultatenrekening) The income statement reports a company's financial performance over a specific period, typically a year. It details revenues and expenses, leading to the net profit or loss for the period. * **Classification:** Reports profit (loss) before taxes, and can include further breakdowns of operating and non-operating income and expenses. #### 1.5.3 Notes to the financial statements (Toelichting) The notes provide additional details and explanations about the items presented in the balance sheet and income statement, including accounting policies, valuation methods, and other relevant information crucial for a true and fair view. ### 1.6 Belgian GAAP vs. IAS/IFRS While both Belgian GAAP and IAS/IFRS aim to provide a true and fair view, there are differences in their structure and specific rules. * **Balance Sheet:** Both frameworks present assets and liabilities. IAS/IFRS offers more flexibility in presentation and requires specific classifications (e.g., current vs. non-current). * **Income Statement:** Both report revenues and expenses. IAS/IFRS allows for more detailed breakdowns and presentation formats. * **Consolidated vs. Individual:** Belgian GAAP typically applies to individual financial statements, while IAS/IFRS is primarily used for consolidated financial statements of listed companies. --- # Foundational accounting principles and legal framework This topic outlines the fundamental assumptions underlying accounting practices and details the Belgian legal framework governing accounting and financial reporting for enterprises. ### 2.1 Introduction to financial reporting Financial reporting provides essential information to external users (stakeholders) for decision-making. Belgian companies must adhere to Belgian accounting law (Belgian GAAP) for individual financial statements. For consolidated financial statements, Belgian listed companies must comply with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). ### 2.2 Legal framework in Belgium The legal framework for accounting in Belgium has evolved through various legislative acts and royal decrees. Key pieces of legislation include: * The Code of Economic Law (WER), which integrated previous laws and decrees. * The Companies and Associations Code (WVV), which replaced the previous Companies Code. * Royal Decrees (KB) implementing the WVV and WER. This legislation is founded on Generally Accepted Accounting Principles (GAAP). ### 2.3 Fundamental assumptions of accounting All accounting practices are based on several core assumptions: #### 2.3.1 The enterprise entity This principle dictates that the business entity is treated as separate and distinct from its owners. This applies to: * **Natural persons** conducting an independent professional activity. * **Legal entities** (e.g., companies). * **Other organizations without legal personality**. * **Public institutions** with a commercial, financial, or industrial statutory mission. * **Institutions** declared subject to accounting regulations by royal decree. The scale of operations, liability, and legal form of an enterprise determine its specific accounting and reporting obligations. Enterprises are categorized based on size: * **Very small enterprises**: * **Criteria**: Annual turnover (excluding VAT) below 500,000 euros (or 620,000 euros for specific fuel retailers). * **Obligations**: Accounting legislation for financial statements does not apply. They maintain single-entry bookkeeping and an internal annual statement without a prescribed model. * **Small enterprises**: * **Criteria**: Legal entities that do not exceed more than one of the following on the balance sheet date of the last closed financial year: * Average annual number of employees: 50. * Annual turnover (excluding VAT): 11,250,000 euros (previously 9,000,000 euros until 31/12/2023). * Balance sheet total: 6,000,000 euros (previously 4,500,000 euros until 31/12/2023). * **Obligations**: Accounting legislation applies. They use double-entry bookkeeping and prepare their financial statements according to a simplified model, with amounts expressed in euros. * **Micro-enterprises** (a subcategory of small enterprises): * **Criteria**: Small enterprises that are not subsidiaries or parent companies and do not exceed more than one of the following on the balance sheet date of the last closed financial year: * Average annual number of employees: 10. * Annual turnover (excluding VAT): 900,000 euros (previously 700,000 euros until 31/12/2023). * Balance sheet total: 450,000 euros (previously 350,000 euros until 31/12/2023). * **Obligations**: Use double-entry bookkeeping and prepare financial statements according to a micro-model, which is a simplified model with limited disclosures, with amounts expressed in euros. * **Large enterprises**: * **Criteria**: Entities that exceed more than one of the criteria for small enterprises on the balance sheet date of the last closed financial year. * **Obligations**: Use double-entry bookkeeping and prepare their financial statements according to the full model, with amounts expressed in euros. > **Tip:** If an enterprise exceeds a size criterion for two consecutive years, it must adapt its accounting and reporting to the stricter requirements from the third year onwards. #### 2.3.2 The continuity (going concern) This principle assumes that the enterprise will continue to exist and operate its activities indefinitely. * **Impact**: It influences the valuation of assets and liabilities. * **Discontinuity**: If an enterprise is expected to cease operations, specific valuation rules apply, such as adjusting asset values to their realizable sale value and providing for closure costs. #### 2.3.3 The consistency (periodicity) Financial statements for the same enterprise must be comparable over time. This means using identical presentation and valuation rules year after year. Deviations are permitted only if necessary to present a true and fair view, provided adequate disclosure is made in the notes. #### 2.3.4 Expression in monetary value All financial information must be expressed in monetary terms. In Belgium, amounts in financial statements are expressed in euros. ### 2.4 Recording of transactions The process of recording business events is governed by several principles: #### 2.4.1 Supporting documents Every accounting entry must be supported by a dated document, which must be referenced in the bookkeeping. * **Retention period**: 7 years for documents with evidentiary value against third parties, and 3 years for documents without such value. However, tax authorities may require a 10-year retention period for supporting documents as of assessment year 2023. #### 2.4.2 Completeness Every transaction that affects or could affect the enterprise's assets or results must be recorded in the accounting system. All transactions, assets, receivables, liabilities, and obligations must be entered promptly, accurately, and completely, in chronological order. #### 2.4.3 Non-compensation This principle prohibits the netting of one transaction against another. Receivables and payables, costs and revenues, rights and obligations must be recorded separately. Exceptions are permissible but must be stipulated by law. #### 2.4.4 Matching principle Revenues and expenses must be recognized in the accounting period to which they relate, regardless of when cash is exchanged. This may involve: * **Accruals (deferral bookings)**: For revenues and costs that have been recorded but partially relate to a future period. * **Prepayments (anticipation bookings)**: For revenues and costs that have not yet been recorded but partially relate to the current period. ### 2.5 Valuation principles The determination of the value of recorded events is guided by: #### 2.5.1 Individual valuation Each asset and liability, or group of identical items, must be valued individually according to valuation rules determined by the enterprise's management. These rules are detailed in the notes to the financial statements. #### 2.5.2 Prudence The financial position of an enterprise should not be presented more favorably than it actually is. Probable losses and unfavorable circumstances should be recognized, while probable gains and favorable circumstances should only be recognized when they have actually occurred. #### 2.5.3 Objectivity Accounting entries must be based on reliable and verifiable data. When supporting documents are unavailable, estimations by authorized bodies are used. #### 2.5.4 Relevance Financial statements must be meaningful and provide users with the necessary information for decision-making. The accounting system must be detailed enough and contain relevant information, adapted to the nature and scale of the enterprise. ### 2.6 Reporting principles The preparation and presentation of financial reports adhere to: #### 2.6.1 Periodicity Financial reporting must occur at regular intervals to allow for the assessment of the enterprise's performance and financial position. This is primarily achieved through the annual preparation of financial statements, summarizing assets and liabilities at a specific point in time and costs and revenues over a period. #### 2.6.2 Comparability Financial statements of different enterprises, even within the same sector, should be comparable in form and content. While standard models for financial statements aid in comparability of form, content comparability can be challenging due to choices in valuation rules. The National Bank of Belgium (NBB) assists in comparability across sectors by providing sector data based on NACE codes. #### 2.6.3 True and fair view The financial statements must provide a faithful representation of the company's assets, financial position, and results. This is the most crucial principle in accounting legislation, and many other accounting principles are designed to achieve this objective. ### 2.7 Belgian GAAP versus IAS/IFRS * **Individual, single financial statements** in Belgium are prepared according to Belgian GAAP. * **Consolidated financial statements** for Belgian listed companies must be prepared according to IAS/IFRS. * The balance sheet and income statement under IAS/IFRS have a different structure and minimum disclosure requirements compared to Belgian GAAP, although they aim for a true and fair view of the entity's financial performance and position. --- # Recording and valuation of business events This section outlines the fundamental principles and procedures governing the recording and valuation of business events within an accounting framework. ### 3.1 Principles for recording business events The process of recording business events is guided by several core principles to ensure accuracy, completeness, and fairness in financial reporting. #### 3.1.1 Supporting documents Every accounting entry must be supported by a dated document that serves as evidence of the transaction. These supporting documents are crucial for verification and auditing. * **Retention period:** Documents with legal proof against third parties must be kept for 7 years. Documents without such proof, like purely internal documents or valuation method documentation, have a 3-year retention period. * **Fiscal expectation:** The tax authorities expect supporting documents to be preserved for 10 years, starting from the 2023 tax year. #### 3.1.2 Completeness All transactions that affect or could affect the company's assets or results must be recorded in the accounting system. This principle ensures that the financial statements reflect the entire economic reality of the business. * **Timeliness and accuracy:** All transactions must be entered into the accounting records promptly, truthfully, and completely, in chronological order. * **Scope:** The accounting system should encompass all transactions, assets, claims, debts, and liabilities of the company. #### 3.1.3 Non-compensation This principle prohibits the netting or offsetting of different transactions. Each transaction must be recorded in its entirety and separately. * **Prohibition:** There is a general prohibition against offsetting receivables and payables, costs and revenues, or rights and obligations. * **Exceptions:** Legal exceptions to this rule may exist but are strictly defined by law. #### 3.1.4 The matching principle The matching principle dictates that revenues and costs should be recognized in the accounting period to which they relate, regardless of when the cash is exchanged. * **Accrual accounting:** This principle is a cornerstone of accrual accounting. * **Deferral entries:** For revenues and costs that have been recognized but relate partially to the next accounting period, deferral entries are used to postpone recognition. * **Anticipation entries:** For revenues and costs that have not yet been recognized but relate partially to the current accounting period, anticipation entries are used to recognize them in the current period. ### 3.2 Valuation principles The valuation of business events and assets/liabilities is guided by principles that ensure financial statements present a fair and reliable picture of the company's financial position. #### 3.2.1 Individual valuation Each element or group of identical elements within assets and liabilities must be valued individually. * **Valuation rules:** Valuation is performed according to rules established by the company's governing body. * **Disclosure:** These valuation rules are typically detailed in the notes to the financial statements. #### 3.2.2 Prudence (Conservatism) The principle of prudence dictates that the company's financial position should not be presented more favorably than it actually is. * **Recognizing losses:** Unfavorable circumstances that are probable should be recognized. * **Recognizing gains:** Favorable circumstances should only be recognized when they have actually occurred. This means anticipating potential losses but not potential gains. #### 3.2.3 Objectivity Accounting records must be based on reliable methods and verifiable data. * **Evidence-based:** Accounting is maintained based on supporting documents. * **Estimates:** In the absence of supporting documents, estimates made by authorized bodies are used. #### 3.2.4 Relevance Financial information presented in the annual accounts must be meaningful and provide users with the necessary information to make decisions. * **Decision usefulness:** The annual accounts should be detailed enough to contain relevant information. * **Adaptation:** The accounting system should be adapted to the nature and size of the company. ### 3.3 Other key principles influencing reporting While not directly under "recording and valuation," these principles are critical for how those recorded and valued events are presented. #### 3.3.1 Periodicity Financial reporting should occur at regular intervals to allow for the assessment of the company's performance and position. * **Annual financial statements:** The primary requirement is the preparation of annual financial statements. * **Snapshot and summary:** These statements provide a snapshot of assets and liabilities at a specific point in time and a summary of costs and revenues over a period. #### 3.3.2 Comparability Financial statements of different companies, or of the same company over different periods, should be comparable in form and content. * **Form comparability:** Achieved through standardized financial statement formats. * **Content comparability:** More challenging due to choices in valuation methods. National Bank of Belgium data can assist in comparability based on sector data. #### 3.3.3 True and fair view The overarching principle is that the financial statements must provide a true and fair view of the company's net worth, financial position, and results. * **Foundation:** This is considered the most important principle in accounting law. * **Goal of other principles:** Many other accounting principles are designed to ensure that this true and fair view is achieved. --- # Reporting principles and financial statements This section outlines the fundamental principles governing financial reporting, focusing on periodic reporting, comparability, and the true and fair view, alongside the structure and content of the balance sheet and income statement, including differences between Belgian GAAP and IAS/IFRS. ### 4.1 Introduction to financial reporting Financial reporting provides essential information to external users or stakeholders, such as shareholders, suppliers, government bodies, creditors, employees, and customers, to aid them in decision-making processes regarding investments, credit, taxation, employment, and purchasing. Belgian companies typically prepare their individual financial statements according to Belgian Generally Accepted Accounting Principles (GAAP), while Belgian listed companies must adhere to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) for their consolidated financial statements. The legal framework for Belgian GAAP is primarily found in the Belgian Companies and Associations Code (WVV) and its implementing royal decree (KB/WVV), which are based on general accounting principles. ### 4.2 Basis principles of accounting Every accounting system is built upon foundational principles that ensure consistency and reliability in financial reporting. These principles are categorized into four main areas: the grounds for accounting, the recording of events, valuation, and reporting. #### 4.2.1 Grounds for accounting These are the fundamental assumptions underpinning any accounting system: * **The business entity:** This principle establishes that a business is a distinct and separate entity from its owners. This applies to natural persons conducting an independent professional activity, legal entities, and other organizations without legal personality. In Belgium, specific regulations under the Economic Law Code (WER) and the Companies and Associations Code (WVV) define which entities are subject to accounting obligations. The reporting requirements and the content of financial statements are influenced by factors such as the company's liability, size, and legal form, leading to a classification into very small, small (including micro-enterprises), and large companies, each with varying reporting obligations. * **Very small enterprises:** Generally, natural persons with an independent professional activity and organizations without legal personality or certain types of partnerships with an annual turnover below 500,000 euros are not subject to the full financial statement legislation. They may maintain a single-entry bookkeeping system and prepare an internal financial statement without a prescribed model. * **Small enterprises:** Legal entities that do not exceed more than one of the criteria (average annual number of employees: 50; annual turnover excluding VAT: 11,250,000 euros; total assets: 6,000,000 euros) prepare their financial statements according to a simplified model under a double-entry bookkeeping system. * **Micro-enterprises:** These are small enterprises that are not subsidiaries or parent companies and do not exceed more than one of the criteria (average annual number of employees: 10; annual turnover excluding VAT: 900,000 euros; total assets: 450,000 euros). They also use a double-entry bookkeeping system and prepare their financial statements according to a micro-model, which is a shortened version of the simplified model with limited disclosures. * **Large enterprises:** Companies exceeding any one of the criteria for small enterprises (average annual number of employees: 50; annual turnover excluding VAT: 11,250,000 euros; total assets: 6,000,000 euros) must follow the full financial statement reporting requirements with a complete model and double-entry bookkeeping. * **The going concern:** This principle assumes that the business will continue to operate and pursue its activities in the foreseeable future. This assumption is crucial for valuing assets and liabilities. If there is a risk of discontinuance, valuation rules must be adjusted, potentially to reflect liquidation values, and provisions for termination costs may need to be made. * **Consistency:** Financial statements of the same company should be comparable over time. This means that the form, content, and methods used in preparing financial statements should remain the same from one year to the next. Deviations are permissible only if required to present a true and fair view, but any such changes must be adequately explained in the notes to the financial statements, including their impact. * **Expression in monetary value:** All financial information must be expressed in monetary terms. In Belgium, financial statements present amounts in euros. #### 4.2.2 Recording of events The process of recording financial events follows several key principles: * **Supporting documents:** Every accounting entry must be supported by a dated document, which serves as evidence and must be referenced in the entry. Supporting documents must be retained for a specific period, typically seven years for those with legal proof against third parties and three years for internal documents without such proof, though tax authorities may expect up to ten years of retention. * **Completeness:** All transactions that affect or could affect the company's assets, liabilities, equity, or results must be recorded in the accounting records without delay, accurately, and in chronological order. This ensures that the accounting system captures all of the company's financial activities, assets, claims, debts, and obligations. * **No offsetting (non-compensation):** Transactions should not be offset against each other. This means that claims should not be netted against debts, and expenses should not be deducted from revenues, except where specifically permitted by law. Each transaction must be recorded in full and separately. * **Matching principle:** Revenues and expenses must be recognized in the accounting period to which they relate, regardless of when the cash is received or paid. This requires accrual accounting, often involving deferred entries for revenues and expenses that relate partly to future periods and anticipation entries for revenues and expenses that relate partly to the current period but have not yet been recorded. #### 4.2.3 Valuation Determining the value of recorded events follows these principles: * **Individual valuation:** Each asset and liability, or group of identical items, must be valued individually. The valuation rules are determined by the company's management and are typically detailed in the notes to the financial statements. * **Prudence:** The financial position of a company should not be presented more favorably than it actually is. Potential unfavorable circumstances that are likely to occur should be recognized, while favorable circumstances should only be recognized when they have effectively materialized. * **Objectivity:** Accounting records should be based on reliable methods and verifiable data. Entries should be supported by documentation. In the absence of supporting documents, estimates made by authorized bodies are used. * **Relevance:** Financial statements must be meaningful and contain the necessary information for internal and external users to make informed decisions. The accounting system should be adapted to the nature and size of the business. ### 4.3 Reporting principles The overarching principles that guide the preparation and presentation of financial reports are: * **Periodicity:** Financial reporting must occur at regular intervals to allow for an assessment of the company's performance and financial position. The primary reporting period is annual, culminating in the preparation of annual financial statements that summarize assets, liabilities, revenues, and expenses for the past period. The financial year may not always align with the calendar year. * **Comparability:** Financial statements of different companies, even within the same sector, should be comparable in form and content. While a standard model for financial statements aids comparability in form, comparability in content can be challenging due to choices in valuation methods. National Bank of Belgium (NBB) data can assist in spatial comparability based on sector information (NACE codes). * **True and fair view:** This is the most important principle in accounting legislation. The financial statements must present a faithful representation of a company's assets, financial position, and results. Most other accounting principles are designed to achieve this objective. ### 4.4 The balance sheet The balance sheet presents a company's financial position at a specific point in time, detailing its assets (work tools/resources) and liabilities (financing means/debts). * **Structure:** * **Assets:** Classified as either fixed assets (with a useful life exceeding one year, e.g., intangible, tangible, and financial fixed assets) or current assets (part of the operating cycle, typically short-term). * **Liabilities:** Classified as either equity (owner's or shareholders' capital, representing the company's debt to its owners) or debt (financing from third parties). * **Classification:** The balance sheet is organized into a series of accounts. Assets are presented in order of decreasing liquidity (how easily they can be converted to cash), while liabilities are presented in order of increasing exigibility (when they are due). * **Belgian GAAP vs. IAS/IFRS:** * **Similarities:** Both frameworks present a balance sheet, income statement, and notes to the financial statements. They also include an overview of changes in equity and a cash flow statement. * **Differences:** IAS/IFRS does not mandate a specific standard model for the balance sheet, only a minimum list of items. Classification typically distinguishes between current and non-current items, with potential for further subclassifications. The Belgian GAAP model is more prescriptive in its structure and presentation. Belgian GAAP requires the balance sheet to be prepared before the appropriation of profit, while IAS/IFRS may present different formats. ### 4.5 The income statement (Profit and Loss account) The income statement summarizes a company's revenues and expenses over a specific period, typically a year, to show its net profit or loss. * **Content:** It typically presents revenues, costs, investments, and financial income and expenses to arrive at the profit or loss for the year before taxes. * **Belgian GAAP vs. IAS/IFRS:** * **Similarities:** Both aim to report the financial performance of the company. * **Differences:** Similar to the balance sheet, IAS/IFRS does not prescribe a fixed standard model for the income statement but requires a minimum list of items. Additional subdivisions and subtotals are permitted. The Belgian GAAP framework provides a more detailed and specific structure for the income statement. > **Tip:** When analyzing financial statements, understanding the underlying valuation and reporting principles is crucial for interpreting the figures correctly and assessing the true financial health of a company. Pay close attention to the notes to the financial statements for explanations of accounting policies and any significant deviations from standard practices. --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Financial accounting | This branch of accounting focuses on providing financial information to external users, such as investors and creditors, through standardized reports like the annual financial statements, adhering to strict regulations like Belgian GAAP or IFRS. | | Management accounting | This type of accounting provides financial information to internal users, primarily managers, to aid in decision-making, planning, and controlling operations, offering flexibility in reporting methods. | | Cost accounting | A subset of management accounting dedicated to identifying, measuring, analyzing, and reporting costs associated with the production of goods or the provision of services, crucial for pricing and profitability analysis. | | Stakeholders | External parties who have an interest in a company's financial performance and position, including shareholders, creditors, suppliers, customers, and government authorities, who rely on accounting information for their decisions. | | Belgian GAAP | Generally Accepted Accounting Principles as applied in Belgium, providing the regulatory framework for preparing financial statements for Belgian companies, ensuring consistency and comparability within the national context. | | IAS/IFRS | International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) are a set of global accounting standards designed to enhance transparency and comparability of financial statements across different countries, particularly for listed companies. | | Enterprise entity | A fundamental accounting assumption that treats a business as a separate and distinct entity from its owners, meaning its assets, liabilities, and operations are accounted for independently. | | Continuity | The accounting assumption that a business will continue to operate in the foreseeable future without the intention or necessity of liquidation or significant curtailment of operations. | | Consistency | An accounting principle requiring that an entity use the same accounting methods and procedures from one period to the next, ensuring comparability of financial statements over time. Deviations are permissible only if justified and disclosed. | | Expression in monetary value | The accounting principle that all transactions and economic events must be recorded and reported in a common monetary unit, typically the national currency (in this case, EUR), to facilitate measurement and comparison. | | Accounting-obligated enterprises | Entities legally required to maintain accounting records and prepare financial statements according to specific national regulations, such as the Belgian Commercial Code and related Royal Decrees. | | Single-entry bookkeeping | A simplified system of accounting where each financial transaction is recorded only once, typically in a cash book or journal. It is often used by very small businesses and is less comprehensive than double-entry bookkeeping. | | Double-entry bookkeeping | A system of accounting where every financial transaction affects at least two accounts, with one account debited and another credited by an equal amount, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced. | | Annual financial statement | A comprehensive set of financial reports, including the balance sheet, income statement, and notes, prepared by a company at the end of each fiscal year to provide a picture of its financial performance and position. | | Consolidated financial statement | A financial statement that combines the financial statements of a parent company and its subsidiaries, presenting them as if they were a single economic entity, eliminating intragroup transactions. | | Supporting documents | Original records or evidence that substantiate a financial transaction, such as invoices, receipts, or contracts, which are essential for verifying the accuracy and validity of accounting entries. | | Completeness | An accounting principle requiring that all financial transactions and events that affect the company's financial position or results must be recorded in the accounting system. | | Non-compensation | The principle that different types of transactions, such as assets and liabilities, or revenues and expenses, should not be offset against each other but recorded separately and in full. | | Matching principle | An accounting principle that requires that expenses incurred to generate revenue should be recognized in the same accounting period as the revenue they helped to generate, ensuring an accurate reflection of profitability. | | Individual valuation | The principle that each asset and liability, or group of similar items, should be valued separately to accurately reflect its individual worth on the financial statements. | | Prudence (Conservatism) | An accounting principle that requires accountants to exercise caution and not to overstate assets or income, and to recognize potential losses or liabilities as soon as they are probable, even if their exact amount is uncertain. | | Objectivity | The accounting principle that financial information should be based on verifiable evidence and reliable methods, free from personal bias, ensuring that accounting records are dependable and can be independently audited. | | Relevance | An accounting principle stating that financial information should be useful to users in making economic decisions, meaning it should be timely, accurate, and have predictive or confirmatory value. | | Periodicity | The accounting principle that divides the economic life of a business into artificial time periods (e.g., monthly, quarterly, annually) for the purpose of reporting financial performance and position. | | Comparability | An accounting principle that enables users to identify and understand similarities in, and differences among, accounting information for different enterprises or for the same enterprise for different periods. | | True and fair view | A fundamental reporting principle, particularly emphasized in European accounting directives, requiring that financial statements present a fair representation of a company's financial position, performance, and cash flows, even if it means deviating from strict accounting rules. | | Balance sheet | A financial statement that reports a company's assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial position. | | Income statement (Profit and Loss statement) | A financial statement that reports a company's revenues, expenses, and profits or losses over a specific period of time, such as a quarter or a year. | | Assets | Resources owned or controlled by a company as a result of past transactions, expected to provide future economic benefits. These are typically classified as current (short-term) or non-current (long-term) assets. | | Liabilities | Obligations of a company arising from past transactions, the settlement of which is expected to result in an outflow of resources. These are typically classified as current (short-term) or non-current (long-term) liabilities. | | Equity | The residual interest in the assets of a company after deducting all its liabilities; it represents the owners' stake in the company. Also known as shareholders' equity or net worth. | | Fixed assets | Assets that are expected to be used by the company for more than one accounting period, typically for more than one year. Examples include property, plant, and equipment. | | Current assets | Assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business, whichever is longer. Examples include cash, accounts receivable, and inventory. | | Owner's equity | The total value of assets minus total liabilities; it represents the owners' claim on the company's assets. | | Third-party equity | Funding provided by external parties other than owners, such as bank loans or bonds payable. |