Bookkeeping for an Estonian OÜ: the beginner guide

Bookkeeping is the habit of writing down every money movement in your company, in a way that adds up. For an Estonian OÜ it is also the proof that you have paid the right tax at the right time. This guide is for a founder who will do the books alone, at least at the start. It explains what the books cover, why each entry has two sides, the routine that keeps them current, and the dates you must not miss.

What bookkeeping covers for an OÜ

An OÜ is a private limited company. It is a separate legal person, so its money is not yours, even when you own all of it. Every euro that enters or leaves the company bank account, and every sale and purchase that is not yet paid, has to be recorded in the company's books. The books show what the company owns, what it owes, what it earned and what it spent.

Four things must be in good order at all times:

• the sales you made and the invoices you issued, with the VAT on them if you are VAT registered
• the purchases you received, with the supplier documents that prove them
• the bank movements, matched to the documents behind them
• the salaries, board fees and dividends you paid, which feed the TSD return

If one of these falls behind, the others become harder to trust. A bank balance that does not match the books is the first sign of trouble.

Double entry in five minutes

Estonian companies keep their books by double entry. Every transaction is recorded as at least one debit and one credit of the same total, so the two sides always balance. This is why the balance sheet can balance.

Here is one example with round numbers. Your OÜ sells a service for €1,000 plus €240 VAT, and the customer pays the total to your bank account in the same month. The bank account goes up by €1,240. The income goes up by €1,000 and the output VAT you owe the state goes up by €240. The entry debits the bank account for €1,240 and credits income for €1,000 and output VAT for €240. The debits and the credits both total €1,240.

Each such record is a journal entry. The ledger collects the entries for one account in date order, and the trial balance lists the balance of every account on one date. If the trial balance does not add up, an entry is missing or wrong. You do not need to be a specialist to read these reports. You need only to check that each entry has a reason and a document.

Set up the chart of accounts once

The chart of accounts is the numbered list of accounts the company uses. Sapita starts you with a chart for Estonian micro-companies, so you do not design one. Keep it small. A chart with a few dozen accounts is easier to read than one with hundreds, and you can add an account when you truly need it.

Before the first entry, record the opening position of the company. This is the set of opening balances on the day your books begin. The opening balances must balance together, and they include the share capital that the owners put in. Every later report depends on them, so check them twice. The registry code of the company goes on every document you issue.

The monthly routine

Good bookkeeping is a short routine done every month, not a large job done once a year. A workable routine has five steps:

1. Collect the documents. Sales invoices you issued, purchase invoices you received and receipts for cash costs. Put them in one place as soon as they arrive.
2. Record them. Enter each sale and each purchase with its date, amount, VAT class and supplier or customer.
3. Match the bank. Import the bank statement and match each line to a document. A line with no document is still open, and you must find out what it was. The matching step is called reconciliation.
4. Check the open items. Look at the unpaid invoices, which are your receivables, and the bills you still owe, which are your payables. Chase the overdue ones.
5. Lock the period and file. Once the month is right, lock it so that nobody changes its figures by accident. If you are VAT registered, prepare and file the VAT return for the month.

A period lock is a safeguard, not a tax rule. Locking keeps the filed figures equal to the books. Corrections after a lock are made in the next period, through a reversal or a new entry.

The deadlines to keep

Three deadlines matter to most OÜs. The dates below apply to a calendar-year company and must be checked against the official sources before you rely on them.

• KMD (the VAT return) and the KMD INF annex are due on the 20th of the month after the period, if the company is VAT registered. A date that falls on a weekend or a public holiday moves to the next working day.
• TSD (the employer's return) is due on the 10th of the month after the payment, in the months when the company pays salaries, board fees or dividends.
• The annual report is due six months after the end of the financial year. For a calendar-year company that is 30 June.

Keep a note of these dates in your own calendar, and check them against the official sources each year.

What to do in the first month

Start with the company's bank account and the documents you already have. Record the opening balances. Then enter the transactions of the first month, one by one, and match each bank line. Do not try to catch up on a whole year at once. Once the first month is clean, the second is easier, and the routine becomes a habit.

If you are not sure how to record something, write it down with a note and ask. A wrong entry that is noted is easier to correct than a wrong entry that is forgotten. The lessons on double entry and expenses show how the common cases are recorded.

Who keeps what

The books are the company's record, and the company must keep them. As the owner, you are responsible for the company's filings, even when another person keeps the books or prepares the figures. An accountant can help with the books or with the annual report, but the responsibility for correct filings stays with the company. Sapita is software and education. It does not replace an accountant, and it does not give tax advice.

Key terms in this guide

• OÜ: the Estonian private limited company form.
• Double-entry: the method in which every entry has two equal sides.
• Credit and debit: the two sides of an entry.
• Journal entry: one recorded transaction.
• Ledger: the history of one account.
• Chart of accounts: the numbered list of accounts.
• Trial balance: the list of balances on one date.
• Bank statement: the bank's list of payments.
• Reconciliation: matching each bank line to a document.
• Opening balance: the balances on the day the books begin.
• Share capital: the owners' investment in shares.
• Equity: what remains for the owners.
• Balance sheet: the company's position on one date.
• Profit and loss: the result of a period.
• Cash position: the money you have and the money due soon.
• Registry code: the company's number in the Commercial Register.
• Fiscal year: the twelve months for which the books are closed.
• Period lock: the safeguard that keeps filed periods fixed.

Sources

• Accounting Act (raamatupidamise seadus), Riigi Teataja: riigiteataja.ee
• Tax and Customs Board (EMTA), income and social taxes and VAT: emta.ee
• Commercial Register, annual report filing, Centre of Registers and Information Systems (RIK): rik.ee