Accounting for Small Companies

Accounting for small companies is a key aspect of business management, since it provides information about the financial condition and efficiency of the company. Small companies in Bulgaria are subject to certain accounting requirements, which are simplified compared to larger enterprises, but compliance with these requirements is nonetheless mandatory. Here is what accounting for small companies involves and what the main obligations are:

1. Accounting records

Small companies are required to keep double-entry accounting, which means that every financial transaction must be recorded in at least two accounts - one for debit and one for credit. The main elements include:

• Income - recording all income from sales or services.
• Expenses - recording all expenses related to operating activity.
• Assets - fixed assets (e.g. machinery, computers) and current assets (such as goods and raw materials).
• Liabilities - to suppliers, to the tax authorities or banks (e.g. loans).
• Capital - capital investments and profits retained in the business.

2. Annual financial statement

Small companies are required to prepare and submit an annual financial statement (AFS) by 30 June of the following year, in accordance with the Accountancy Act. This statement contains:

• Balance sheet - shows the assets, liabilities and equity of the company.
• Income statement - shows how much income and expenses the company generated during the year and whether it achieved a profit or a loss.
• Cash flow statement - shows the movement of cash, explaining where it comes from and what it is spent on.
• Statement of changes in equity - shows the changes in the company's capital during the year.

Small enterprises may use abbreviated forms of financial statements if they meet the conditions for small enterprises (for example, turnover below a certain threshold and a certain number of employees).

3. Tax obligations

Small companies in Bulgaria are subject to the following tax obligations:

• Corporate tax - the standard rate is 10% on profit.
• Personal income tax - if the company is a sole trader, taxation is carried out under the rules for personal income tax.
• Tax on dividends - when distributing dividends, a tax of 5% is due.
• VAT (Value Added Tax) - if the company has an annual turnover above BGN 100,000, it is required to register under the VAT Act and to charge 20% VAT on its goods and services. Otherwise, registration is voluntary. There is also another type of mandatory registration, the so-called partial registration under the VAT Act, in the case of transactions with an EU country or third countries.

4. Tax returns

Small companies must file tax returns, which include:

• Annual tax return - submitted by 30 June of the following year, in which the profit is declared and the corporate tax is calculated.
• Monthly VAT returns, if the company is registered under the VAT Act, and quarterly returns for declaring tax - if the company has paid income to individuals under non-employment relationships during the previous quarter.

5. Personnel expenses

If the company has employees, it must also keep accounts for remuneration and insurance contributions. These expenses include:

• Salaries - accrual of gross remuneration.
• Social and health insurance - insurance contributions for the State Social Security (SSS) and the National Health Insurance Fund (NHIF), which the employer is obliged to pay.
• Insurance declarations - monthly submission of declaration forms 1 and 6 to the National Revenue Agency (NRA), with information about the employees' insurance contributions.

6. Documentation and archiving

Small companies must keep and store accounting documentation for all financial operations, including:

• Invoices - for all purchases and sales.
• Payment documents - for the payments made and the income received.
• Contracts and agreements - for transactions and contracts with counterparties and employees.
• Documents for taxes and insurance contributions - including declarations and payment orders for paying taxes and insurance contributions.
• The documents must be kept for at least 5 years, and some - even longer, depending on the legal requirements.

7. Cash discipline

If the small company makes cash sales, it must comply with the rules for cash discipline:

• Use a cash register that is connected to the National Revenue Agency (NRA).

• Issue cash receipts for every sale.

• Keep and record all cash operations and payments.

• Comply with the restrictions under the Act on Limiting Cash Payments, regarding cash settlements.

8. Registration as a small enterprise

In order to take advantage of the reliefs for small enterprises, the company must meet certain criteria under the Accountancy Act, namely:

• Average number of employees - up to 50 people.
• Net sales revenue - BGN 20,000,000.
• Balance sheet value of assets - BGN 10,000,000.

Small enterprises may use abbreviated forms of accounting statements when publishing and are not subject to mandatory audit (with some exceptions).

9. Digital accounting

Increasingly often, small companies use software solutions for accounting that automate the process of keeping accounting documentation and filing tax returns. Accounting software can significantly facilitate the business by saving time and reducing the risk of errors.

Accounting for small companies involves a number of obligations that are key to financial management and compliance with legislative requirements. Of great importance are the correct keeping of documentation, the timely filing of tax returns and the payment of taxes and insurance contributions. Proper accounting helps small firms maintain good financial control and avoid penalties from the tax authorities.

For a detailed consultation, contact the team at Марилена-Консулт ЕООД.