Sapita

Glossary

Glossary of bookkeeping and tax terms

The words you meet in your books and your filings, in plain English, with an example in euros. Free to read, without an account.

A

  • AccrualAn accrual records income or an expense in the period it belongs to, even when the money moves later. It keeps each year's profit honest.
  • AllocationAn allocation links a payment to the invoice or invoices it pays. One payment can cover several invoices, and one invoice can be paid in several parts.
  • Annual reportThe annual report sets out a company's financial position and results for one financial year, prepared from the closed books and filed with RIK.
  • AssetAn asset is something the company owns or controls that has value and will bring benefit later. Cash, money owed by customers and equipment are common examples.

B

  • Balance sheetThe balance sheet shows what a company owns, what it owes and what belongs to the owners, on one date. Assets always equal liabilities plus equity.
  • Bank statementA bank statement lists the payments into and out of a bank account over a period, issued by the bank. You compare it with your books to find gaps.

C

  • Cash positionThe cash position is the money the company holds now in its bank and cash accounts, plus the money due in and out soon. It shows whether you can pay bills.
  • Chart of accountsThe chart of accounts is the numbered list of every account the company uses. Accounts are grouped as assets, liabilities, equity, income and expenses.
  • Closing entryA closing entry moves the balances of the income and expense accounts into equity at the end of the year. After it, those accounts start the next year at zero.
  • CreditA credit is the right-hand side of a journal entry. For income, liability and equity accounts it usually increases the balance.
  • Credit noteA credit note is a document that cancels all or part of an earlier sales invoice. It has its own number and it refers to the invoice it changes.

D

  • DebitA debit is the left-hand side of a journal entry. Whether a debit increases or decreases an account depends on its type, such as an asset or an expense.
  • DepreciationDepreciation spreads the cost of a fixed asset over the years it is used. Each year an expense is recorded and the book value of the asset goes down.
  • DividendA dividend is a payment of profit to shareholders. Estonia taxes a distribution when it is paid out, and the tax is reported in the TSD return.
  • Double-entryDouble-entry is the method in which every transaction is recorded as at least one debit and one credit of the same total. The two sides always balance.
  • Due dateThe due date is the day by which an invoice must be paid. It is set from the invoice date and the payment terms, such as 14 or 30 days after the invoice date.

E

  • ECB reference rateThe ECB reference rate is the exchange rate the European Central Bank publishes each working day for major currencies. Sapita uses it to convert amounts.
  • EquityEquity is what remains for the owners after the company's liabilities are paid from its assets. It is share capital, retained earnings and the year's result.
  • e-MTAe-MTA is the online service of the Tax and Customs Board (EMTA). Companies file their returns there, such as the VAT return and the TSD return.
  • e-ResidentAn e-Resident is a person who is not an Estonian resident but holds a digital identity issued by Estonia, which lets them run an Estonian company.

F

  • Financial yearThe financial year is the twelve-month period for which the books are closed and the annual report is prepared. It often matches the calendar year.
  • Fixed assetA fixed asset is an asset the company keeps for more than one year, such as equipment, a vehicle or a computer. Its cost is spread over its useful life.
  • Foreign currencyA foreign-currency amount is written in a currency other than the euro. The books are kept in euros, so each foreign amount keeps its rate and date.

I

  • IBANAn IBAN is the international bank account number. Estonian IBANs start with EE and have 20 characters. Customers use it on your invoice to pay you.
  • Income tax on distributionsIncome tax on distributions is the corporate income tax Estonia charges when profit is paid out, for example as a dividend.
  • Input VATInput VAT is the VAT that a supplier charged the company on a purchase. Whether it can be reclaimed depends on the purchase and how it is used.
  • InvoiceAn invoice is the document a seller gives the buyer to show what is sold, the price, the VAT and the amount due. A sales invoice is one your company issues.
  • Invoice numberAn invoice number identifies a sales invoice. Numbers follow each other in order with a prefix that stays the same, so no number is skipped or reused.

J

  • Journal entryA journal entry is one recorded transaction. It lists the accounts it changes, with a debit or a credit for each, and the debits must equal the credits.

K

  • KMDKMD is the VAT return a registered company files with EMTA, usually each month. It shows the amount to pay or to reclaim for the period.
  • KMD INFKMD INF is the annex filed with the VAT return. It lists the company's sales and purchases partner by partner, for partners with at least EUR 1,000 net.

L

  • LedgerThe ledger is the record of every account, with each entry that changed it in date order. It is where you see the full history of one account, such as the bank.
  • LiabilityA liability is an amount the company owes to someone else, to be paid or settled in the future. Money owed to suppliers and to the owner are typical examples.

O

  • OSSOSS, the One-Stop Shop, is the EU scheme for selling to consumers in other EU countries. One quarterly return reports the VAT for those sales.
  • Opening balanceAn opening balance is the amount in an account on the day your books begin. The opening balances together must balance, so the first period starts correctly.
  • Output VATOutput VAT is the VAT the company charges its customers on its sales. It is collected for the state and reported in the VAT return for each period.
  • OverdueAn invoice is overdue when its due date has passed and it has not been paid in full. Overdue receivables are a cash risk, and they are shown in the reports.
  • Owner loanAn owner loan is money the owner has lent to the company, or money the owner has taken out and must return. It is a liability when the company owes the owner.
  • OÜAn OÜ is a private limited company, the most common company form in Estonia for a small business. Its owners are not personally liable for the company's debts.

P

  • Partial paymentA partial payment is less than the full amount of an invoice. The invoice stays open for the rest, and the receivable shows the amount still due.
  • PayableA payable is an amount the company owes a supplier for goods or services it has received. It is a liability until the company pays the supplier in full.
  • Payment referenceA payment reference is the text or number a customer puts on a payment so it can be matched to an invoice. The invoice number is a clear one.
  • Period lockA period lock stops changes to the entries of a closed period, such as a month or a year. Locking keeps the filed figures the same as the books.
  • Profit and lossThe profit and loss report adds up income and expenses over a period and shows the result. A positive result is a profit and a negative result is a loss.

R

  • RIKRIK, the Centre of Registers and Information Systems, runs the Estonian Commercial Register. Companies register there, and their annual reports are filed there.
  • ReceivableA receivable is an amount a customer owes the company for goods or services already delivered. It is an asset until the customer pays.
  • ReconciliationReconciliation is the step where each bank line is matched to a document or a transaction in the books. A bank line that is not matched is still open.
  • Registry codeA registry code is the number that identifies a company in the Estonian Commercial Register. An Estonian company's registry code has eight digits.
  • Retained earningsRetained earnings are the profits the company has made over the years and not paid out as dividends. They are part of equity.
  • ReversalA reversal is a new entry that cancels an earlier one, with the same amounts and the debits and credits swapped. Posted entries are never edited.
  • Reverse chargeUnder the reverse charge, the buyer, not the seller, accounts for the VAT on certain cross-border sales between VAT-registered businesses.

S

  • Share capitalShare capital is the amount the shareholders have put into the company for their shares. It is recorded in equity and is one of the opening balances.

T

  • TSDTSD is the monthly employer return for income tax and social tax on salaries, board fees and dividends. It is due on the 10th of the next month.
  • Trial balanceA trial balance lists the balance of every account on one date, in debit and credit columns. The two totals must be equal.

V

  • VATVAT, or value added tax, is a tax on the value added at each stage of a sale. A VAT-registered company charges it and pays the difference to the state.
  • VAT classA VAT class is the code on each invoice or purchase line that sets its VAT rate and the line of the VAT return the amount goes to.
  • VAT numberA VAT number identifies a VAT-registered business. Estonian VAT numbers start with EE followed by nine digits. You need a customer's VAT number for EU sales.
  • VAT registrationVAT registration makes a company a VAT payer. From then on it charges VAT on its sales, files a VAT return each period and pays the VAT due.
  • VDVD is the report of intra-EU supplies, the sales of goods and certain services to VAT-registered businesses in other EU countries. It is filed with EMTA.

Y

  • Year-end closingYear-end closing is the set of steps that make the books of a financial year final. It covers checking figures, posting year-end entries and closing the result.