Accounting for sole proprietorships: the complete file to help you make sense of it all
Are you the head of a sole proprietorship (EI) and wondering what the accounting rules are?
Because the accounting obligations that apply depend on your tax regime and your business... it's easy to get lost!
But don't panic: whether you're a micro-business, a company governed by the standard tax regime or a BIC company, we've got it all covered!
What are the accounting obligations of a sole trader?
The accounting obligations of Sole Proprietorships (Entreprises Individuelles, or EI) differ according to :
- The tax regime applied:
- normal actual regime,
- simplified tax system,
- micro-enterprise scheme.
- The business activity:
- business generating industrial or commercial profits, or BIC,
- business generating non-commercial profits, or BNC.
Accounting obligations for private limited companies under the standard actual regime
Companies concerned
- Companies generating turnover in excess of :
- 818,000 excluding VAT for the sale of goods, food to be taken away or consumed on the premises and the provision of accommodation,
- 247,000 excluding VAT for service provision activities.
- who are subject to another tax regime, but have nevertheless opted for the standard actual tax regime.
Their accounting obligations
- Commitment accounting 👉 This involves declaring all movements affecting the company's assets:
- record receivables and payables in chronological order ;
- record all supporting documents on the day they are drawn up.
- Produce accounting books, i.e. :
- the journal: this records accounting transactions in chronological order;
- the general ledger: this lists all transactions, classifying them by accounting account.
- Centralise the subsidiary journals in the journal book on a monthly basis.
- Draw up the annual accounts and file them with the Commercial Court:
- the balance sheet: this shows the company's assets and liabilities at a specific date;
- the profit and loss account: this shows the income and expenses for the financial year;
- the appendices: these help to understand the balance sheet and profit and loss account.
- Carry out an inventory at least once every twelve months.
Accounting obligations for private limited companies under the simplified actual scheme
Companies concerned
- For the sale of goods, food to be taken away or consumed on the premises and the provision of accommodation 👉 companies with a turnover of between €176,200 and €818,000 excluding VAT.
- For service provision activities 👉 businesses with a turnover of between €72,600 and €247,000 excluding VAT.
💡 In the above cases, companies are automatically covered by the simplified actual scheme and benefit from accounting relief. They may, however, opt for the normal actual scheme.
Their accounting obligations
- Keep cash accounts 👉 This type of accounting only takes into account income received and expenditure paid. Receivables and payables are only recorded at the end of the financial year.
- Centralise accounting entries (in a daybook in particular) every quarter.
- Carry out a flat-rate valuation of stocks and work-in-progress.
- Deduct fuel costs on a flat-rate basis, calculated in accordance with the tax authorities' scales.
- Draw up the annual accounts and file them with the Commercial Court:
- a simplified balance sheet: showing the main assets and liabilities ;
- a simplified profit and loss account, showing the main income and expenses.
Accounting obligations of IEs covered by the micro-enterprise scheme
Companies concerned
- For the sale of goods, takeaway food or food to be consumed on the premises and the provision of accommodation 👉 companies with a turnover of less than €176,200 excluding VAT.
- For service provision activities 👉 companies with a turnover of less than €72,600 excluding VAT.
Companies covered by this scheme benefit from highly simplified accounting, the main purpose of which is to determine the profits taxable by the tax authorities.
Their accounting obligations
- Keep a book of receipts, in which all receipts over the course of a year are recorded in chronological order.
- Produce a register of purchases in the following cases:
- sale of goods
- sale of foodstuffs for consumption on the premises or to take away,
- accommodation services.
- Draw up invoices.
Micro-businesses do not have to keep annual accounts.
Accounting obligations of sole traders under the BNC regime
Businesses concerned
The BNC regime applies to income from :
- liberal professions
- charges and offices (e.g. notaries),
- copyright,
- agents acting on behalf of their clients, etc.
However, the accounting obligations of BNC-registered private limited companies differ depending on the tax regime to which they are subject:
- the micro-BNC scheme 👉 for businesses with turnover of less than €72,600 ;
- the controlled declaration regime 👉 for businesses with turnover in excess of €72,600.
💡 The 2022 Finance Act now allows you to opt out of the controlled declaration regime within the same timeframe as for opting in.
Accounting obligations for IEs covered by the micro-BNC scheme
These are the same obligations as for micro-businesses under the BIC regime (see above).
Accounting requirements for limited companies under the controlled declaration regime
- Keep cash accounts 👉 As seen above, this requires the keeping of an income and expenditure ledger.
- Drawing up a register of fixed assets 👉 this is a specific feature of BNC under the controlled declaration regime, and involves indicating :
- the date of acquisition and disposal of the fixed asset,
- its nature
- its cost and sale price.
- Produce an income statement for tax purposes (declaration no. 2035). However, annual accounts are not compulsory.
How do you keep your accounts for a sole trader?
Using the services of a chartered accountant
Many sole traders, particularly those operating under the standard accounting system, choose to use the services of a chartered accountant:
- by outsourcing their accounting, even partially,
- hiring their own professional accountant.
Hiring a chartered accountant can be a significant expense, but it offers three main advantages:
- it saves the company time
- reduced risk of error, and compliance with current accounting regulations,
- expert advice, particularly on tax matters .
Ultimately, it is the skills available in-house, the budget and above all the type of accounting to be applied that determines whether or not to use a chartered accountant.
💡 Note that you can also opt for the services of an online chartered accountant!
Keeping your own accounts
Keeping your own accounts allows you to :
- save money,
- get a clearer picture of their expenditure, income and business in general.
Excel-based accounting for sole traders
It is possible to keep your accounts in the traditional way, using an Excel spreadsheet in particular, especially if you have simplified accounts (the micro-business receipts and purchases register, for example).
However, as soon as the accounting obligations of the sole trader become more complex, and require the production of annual accounts, the use of accounting software is recommended.
Accounting software for sole traders
The major advantage of accounting software is that there is such a wide range on the market that it's easy to find the right solution for :
- the nature of your accounting obligations
- the structure and skills present in the business
- the budget you can allocate to it. You can even find free accounting software for sole traders, a solution tailored to the needs of small organisations.
And there are other advantages too:
- it's a management tool that gives you an overview of your company's financial situation;
- It centralises information, making it accessible at any time and from any place;
- It saves time;
- It reduces errors, such as data entry;
- it's a good tool for communication between employees, but also with the chartered accountant.
What is your solution for meeting the accounting obligations of your sole proprietorship? Tell us about your experience in the comments section.