Bookkeeping: What to do
When you own your own business, you need to manage your business finances. You do this by means of bookkeeping, which gives you an overview of:
- Your income and expenses
- How much you owe (debt)
- The value of your business (equity: Assets less debt)
When the financial year is coming to an end, you must use your bookkeeping to prepare your business’s accounts. We recommend that you do your bookkeeping regularly, and keep track of your invoices (vouchers) so that you have the best possible overview when preparing your accounts. If you need help with your bookkeeping, see our Danish-language Bookkeeping guide.
Get ready to do your bookkeeping
When it comes to bookkeeping, it’s a good idea to use a bookkeeping programme. Normally, bookkeeping programmes can be used for bookkeeping, VAT and tax accounting, invoicing customers, inventory management and much more.
You can also decide to use an accountant or bookkeeper to take care of your business’s digital bookkeeping.
Bookkeeping programme
Pros
- The programme automatically calculates your VAT and tax deductions when you enter your expenses.
- It provides a chart of accounts that matches your business’s needs.
- You can also use it to write invoices, manage your inventory and do your VAT and tax accounting.
- Some standard versions are free or can be purchased for a small fee.
Cons
- It costs money if you want features over and above the standard versions.
Bookkeeper
Pros
- No more daily bookkeeping and more time for your business.
- A bookkeeper knows how to keep books.
Cons
- It costs money to use a bookkeeper.
- You still have the ultimate responsibility for correct bookkeeping.
If you sell goods and services which are subject to VAT, you must issue an invoice. You need to create your invoices in a non-editable format. For example in PDF format. You also need to save a copy of the invoice as a voucher in your accounts.
The invoices must have consecutive numbers, which means that if your last invoice was numbered 1, the following invoices should be numbered 2, 3, 4, etc.
When selling goods and services that are subject to VAT, the invoice must include:
- Invoice number
- Invoice date
- Seller’s name and address and CVR/SE number
- Customer’s name and address
- Type, quantity and price of the item
- Delivery date (if it is not the same as the invoice date)
- The basis for calculating VAT, the unit price of the goods or services exclusive of VAT, any price reduction, bonus or discount unless included in the unit price.
- Applicable VAT rate
- The VAT amount
Download a Danish-language invoice template (excel).
Video: How to make an invoice
If you sell goods/services for less than DKK 3,000 to another VAT-liable business, you can use a simplified invoice that includes information on:
- Business name and address
- Business registration number (CVR number)
- Consecutive number (invoice number)
- Date of issue (invoice date)
- A description of the quantity and nature of the goods supplied/the scope or nature of the services rendered
- The total invoice amount and the VAT amount
To indicate the VAT amount, state that the tax is 20% of the total price including VAT (equivalent to 25% of the price excluding VAT).
Video: How to create a simplified invoice
If you sell goods/services to public institutions, you must issue an electronic invoice via virk.dk:
You must enter your transactions (sales, purchases, loans etc.) in your books as soon as possible – even if the amount on the invoice has not been paid. In so far as possible, you should enter your transactions in the order in which you made them.
It's important that you keep track of your vouchers and keep them for 5 years after the end of the financial year. They can be stored electronically.
How to keep track of your vouchers:
- Give your vouchers a voucher number when entering them in your books and write the number on the vouchers.
- Use consecutive voucher numbers, that is a sequence, for example 103, 104, 105 etc.
- File any paper vouchers in numerical order in a ring-binder.
How to do your bookkeeping
When preparing your accounts, you need to break down your income and expenses into smaller categories, for example advertising, rent, purchases and administration. A category is also called an account. For example, you can gather all the entries for rent in one account called ‘Rent’.
If you are registered for VAT or payroll tax, you will also need to create an account for each of those taxes.
Chart of accounts: List of your accounts
A chart of accounts is a list of all the accounts you use for bookkeeping. You use the chart of accounts when you do your accounting and to calculate what you need to pay in taxes and VAT.
You can see other accounts that might be relevant to your business in our bookkeeping guide:
Bookkeeping guide: Chart of accounts for sole proprietors without employees (Currently in Danish)
Bookkeeping guide: Chart of accounts for sole proprietors with employees (Currently in Danish)
Bookkeeping guide: Chart of accounts for personally owned small businesses (Currently in Danish)
Accounting programs can automatically manage your accounts
If you use an accounting programme, you are able to choose a default chart of accounts. The accounting programme will then automatically assign consecutive numbers to the different accounts (cost of sales, advertising etc.). It will also automatically calculate the size of your deduction when you enter your expenses in the different accounts.
When you have had an income or expense in your business, you need to enter it in two places in your financial statements. You need to book it under both the:
- Income statement, as income or expense
- Balance sheet, as asset or liability
Also known as double-entry bookkeeping, this means that every income and expense must be both debited and credited in order for the books to balance.
We recommend that you enter your company’s income and expenses in your books on a regular basis.
Example: Sale to a customer
If you have a sale to a customer, you book it as income in the income statement and as an asset in the balance sheet, as it is money owed to you.
Example: Purchasing a machine
If you buy a machine for your business, you book the amount as a withdrawal from your business’s bank account, for example, and as an asset on the balance sheet, as the machine now contributes to the value of your business.
If you own a business (for example a shop or café) that has a cash register and daily sales, you need to reconcile your cash register on a daily basis. If you fail to reconcile your cash register, we may have to disregard your accounts and instead estimate your business tax and VAT. This could mean that your business has to pay more in VAT and tax, and you also risk being fined.
When reconciling your cash register, count how much is in the till. The amount must match your cash accounts. You must be able to document your sales if we request you to do so in order to approve your accounts.
Use a form for your cash reconciliation
To do a cash reconciliation, you need a form where you enter all the amounts.
The form below will help to show what to write in the different fields. You can choose to fill out the form and save it to your computer, where the most important amounts are automatically added up, or you can print the form and add up the figures yourself.
Download the Danish-language cash reconciliation form (Excel)
Discrepancy between cash and cash accounting
There may be a difference between the amount you have counted in the cash register and the amount in your cash book. You might, for example, have rounded your change slightly up or down. You must account for this discrepancy.
If the difference is large, you should do what you can to identify the error and then book it as either income or expense.
Once you have finished the cash reconciliation, you must make sure to save vouchers for 5 years.
The vouchers may be, for example:
- The day’s payment card receipts
- Daily Z report
- Cash reconciliation form
- Credit notes
- Simplified invoices
- Receipts for items which you paid for with money from the cash register
You must remember to enter these vouchers in your accounts so you can document the day’s sales. If the cash register is not correct, remember to book the cash difference as well.
In our video we also explain:
- What a chart of accounts should contain
- Double-entry bookkeeping
- Cash accounting
- How to bookkeep output and input VAT
The video is intended for sole traders or personally owned small businesses.
Duration: 02:49 minutes
Try our bookkeeping guide
Our bookkeeping guide provides help on how to book your vouchers correctly and ensure the right deductions for your business expenses. The guide covers most of the topics and voucher types you need.