Accounting of a limited liability company – what is it?
In the case of a limited liability company or any legal entity, the regulations require full accounting. This means that every zloty spent in the company must be recorded. Unlike a sole proprietorship, where simplified accounting can be kept up to a turnover equivalent to EUR 2 million, in a capital company full accounting books are mandatory from the very beginning of the activity. Full accounting in a limited liability company it also has its advantages. Thanks to it, you can get a complete picture of your company’s finances.
Full accounting of a limited liability company this is also the double entry principle in accordance with the Accounting Act. This allows you to identify places that generate the highest costs, but also gives you knowledge about what brings the greatest profits. Additionally, companies can use extensive analytical account structures that allow for the calculation of profitability of individual products, departments in the company or types of activities.
The summary of the company’s year-round operations is the profit and loss account, which includes all revenues obtained and costs incurred during the year. The second extremely important document is the balance sheet, i.e. a list of assets and liabilities or other assets and the sources of their financing. The income statement, balance sheet and, for larger entities, also the cash flow statement or statement of changes in capital make up the annual financial statement. The entire financial statement ultimately goes to the registry court and is published in the National Court Register. Such a report must also be sent to the tax office competent for the company’s address.
Private Limited company. and a joint-stock company – differences
Private Limited company. and a joint-stock company are the two most popular types of commercial law companies in Poland. Despite apparent similarities, there are significant differences between them. Private Limited company. usually has smaller share capital compared to a joint-stock company. The minimum capital for the former is only PLN 5,000, while a minimum of PLN 100,000 is needed to establish a joint-stock company.
These two companies differ not only in the amount of capital. An important difference is also the minimum value that one share or share can nominally have. Share capital in a limited liability company is divided into shares that do not have to be equal. The smallest nominal value of such a share is PLN 50. However, the share capital of a joint-stock company is divided into shares, which must be nominally equal to each other, and the lowest value of such a share may be 1 grosz.
Another difference is that a limited liability company operates on the basis of a company agreement, and a joint-stock company operates on the basis of its statute. A limited liability company can be established online in a simplified mode via the S24 portal. A traditional form of establishing a legal entity is provided for a joint-stock company, where the company’s statute is drawn up in the form of a notarial deed before a notary.
A joint-stock company is obliged to create supplementary capital to cover possible losses. The provisions of the Commercial Companies Code require the accumulation of part of the profit for a given financial year until the capital invested in this way reaches the value of at least 1/3 of the value of the share capital. However, in the case of a limited liability company there is no such requirement.
What should the company's accounting books contain?
In accordance with the provisions of the Accounting Act, accounting books include sets of accounting entries, turnover and balances. They consist of a journal, general ledger, subsidiary ledgers, trial and balance sheets of general ledger accounts and balances of subsidiary ledger accounts, as well as a list of assets and liabilities (inventory).
What is a diary?
The Act defines it as a chronological presentation of events that occurred in a given reporting period. Regardless of the bookkeeping technique, the journal should enable reconciliation of its turnover with the turnover of the statement of turnover and balances of the general ledger accounts. Entries in the journal must be numbered consecutively, and the method of making entries in the journal should enable their unambiguous connection with verified and approved accounting evidence. If partial journals are used, grouping events according to their types, a summary of the turnover of these journals for a given reporting period should be prepared.
General ledger accounts
General ledger accounts contain records of events on a systematic basis. General ledger accounts must include events recorded previously or simultaneously in the log, in accordance with the double-entry principle. Entries to a specific general ledger account are made in chronological order.
Subsidiary ledger accounts
They contain entries that detail and supplement the entries in the general ledger accounts. They are kept systematically as a separate system of books, files (sets of accounts), computer data files, reconciled with the balances and entries in the general ledger accounts. In this type of accounts, natural units may be used in addition to or instead of monetary units during the reporting period.
Subsidiary ledger accounts are kept in particular for: fixed assets, including fixed assets under construction, intangible assets and depreciation or amortization write-offs made on them, settlements with contractors, settlements with employees, sales operations, purchase operations, costs and significant for a unit of assets or cash operations in the case of running a cash register.
A trial balance
The turnover and balance sheet is prepared at the end of each reporting period, but at least at the end of the month. The basis for its preparation are entries in the general ledger accounts.
List of assets and liabilities (inventory)
The list of assets and liabilities (inventory), confirmed by an inventory, is prepared by units that have not previously kept accounting books in the manner specified in the Act. In other units, the role of the inventory is fulfilled by the statement of turnover and balances of general ledger accounts and the statement of balances of subsidiary ledger accounts prepared as at the date of closing the accounting books.
Company financial statements
Full accounting is performed to calculate tax and monitor the company’s financial situation. Financial statements are also prepared on the basis of data from the books, which are mandatory for all companies keeping complete books.
The level of detail in the reports depends on the size of the company. The Act divides companies into micro, small and other (i.e. the largest companies that do not fit the criteria of micro and small entities). There are slightly different report templates for each type of entity. Generally, the larger the company, the more detailed the report should be. A report is a type of report that must be electronically sent to the National Court Register. The reports of all capital companies can be viewed on the eKRS portal.
Taxation of income in a limited liability company
A limited liability company that starts its business may tax income from sources other than capital gains:
basic rate 19%,
reduced rate of 9%,
Estonian CIT.
The preferential rate of 9% can be applied by taxpayers already in the first year (i.e. in the year of opening of the limited liability company) and it applies to revenues (income) other than from capital gains if the limited liability company stipulates that the revenues generated in the tax year will not exceed the amount expressed in PLN corresponding to the equivalent of EUR 2,000,000 converted at the average euro exchange rate announced by the National Bank of Poland (PLN 9,654,400 for 2023) on the first business day of the tax year, rounded to PLN 1,000 ( limited liability company is a small CIT taxpayer).
The status of a small CIT taxpayer also gives the limited liability company the opportunity to make one-off depreciation of up to EUR 50,000 per year of fixed assets worth over PLN 10,000 included in group 3-8 KŚT (does not apply to passenger cars). Every taxpayer, regardless of their small taxpayer status, can also benefit from one-off depreciation of new fixed assets up to a total value of PLN 100,000 per year.
Private Limited company. may choose to have their income taxed with Estonian CIT in the first tax year. The tax will not apply to the company’s income, but only to the “consumption” of income for the benefit of the partners. If in a given year of operation the limited liability company wants to choose this type of taxation, then he is obliged to submit a ZAW-RD notification to the tax office competent for the company’s registered office address by the end of January this year.
Audit of the report by statutory auditors - when is it necessary?
In some cases, companies’ financial statements are subject to mandatory auditing by statutory auditors. They must also include a cash flow statement and a statement of changes in equity. This applies to companies that met at least two of the following conditions in the previous financial year:
the average annual employment in full-time equivalents was at least 50 people,
the total assets of the balance sheet at the end of the financial year were the equivalent in Polish currency of at least EUR 2,500,000,
net revenues from the sale of goods and products and financial operations for the financial year were the equivalent in Polish currency of at least EUR 5,000,000.
You want to set up a limited liability company, you are struggling with the accounting of such a company, and your current accountant cannot comprehensively solve your problems, call ASK for advice.
