Full Accounting and Simplified Accounting for Businesses – What’s the Difference?

Running a business comes with many privileges but also a series of obligations that must be fulfilled towards institutions. One of them is imposed by Polish tax law, which states that all entrepreneurs are obliged to keep accounting records in their companies. Business owners can meet this obligation in two ways: by keeping simplified (known as small) accounting or full accounting. The first of these options is a relatively simple method, but not all business owners can use it, as it is determined by regulations. The second of the presented models of recording revenues and expenses is much more complicated and often requires cooperation with a professional accounting office.

What is Simplified Accounting?

This method of recording financial inflows and outflows is dedicated to small businesses. It involves keeping a Revenue and Expense Ledger (known as KPIR), where all transactions are recorded. This method is most often chosen by individuals running sole proprietorships, partnerships, general partnerships, as well as civil law partnerships that do not generate revenue from running a farm. Additionally, a necessary condition to use simplified accounting is not earning income greater than 2,000,000 euros in the tax year when converted to Polish zloty. An important aspect for entrepreneurs is the choice between two tax options. The first one is based on general principles and involves paying tax at a rate of 17% or 32%. The second form involves paying a flat-rate tax at a rate of 19% regardless of the income earned.

Although keeping a Revenue and Expense Ledger is the simplest way to record financial inflows and expenses for small businesses, it is not the only one. It is also possible to distinguish between the tax card and lump-sum income tax. The first of these options is intended for a specific group of entrepreneurs who conduct specific types of business, such as providing transport services or operating in the gastronomy industry. The second of the above-mentioned forms pertain to attributing revenue records to the appropriate lump-sum tax rate. In this situation, the costs associated with running the business do not affect the amount of tax paid. Although simplified accounting can be done independently, many companies decide to entrust it to a professional accounting office.

Full Accounting - When is it Required?

Achieving revenue above 2,000,000 euros when converted to Polish zloty is the basic requirement that obliges an entrepreneur to keep full accounting regardless of the type of business they own. However, it should be mentioned that companies can choose this method of reporting even if they have not reached this limit. Nevertheless, according to Polish law, a full accounting is required for companies:

• with limited liability
• joint-stock companies
• limited partnerships
• limited joint-stock partnerships

Using full accounting is, on the one hand, extremely complicated as it requires a series of activities, including preparing financial statements and keeping accounting records under the Accounting Act. On the other hand, this method allows for complete control over revenues and expenses since every transaction must be recorded and settled. Many entrepreneurs who choose this method of reporting to the Tax Office decide to use the services of professional accounting offices as it involves significant time savings.

Summary - Small Accounting or Full Accounting? Which one to choose?

Regardless of the choice of the method of recording revenues and expenses (small or full), each of them has its advantages and disadvantages. Small accounting is much simpler and more transparent than its more advanced counterpart but does not provide the necessary information about company finances. On the other hand, a full accounting is significantly more complicated, nevertheless it provides a comprehensive picture of the financial condition of the company, as each operation must be accurately recorded and settled. Many entrepreneurs opt for professional accounting offices to handle their financial reporting to the Tax Office, as it results in significant time savings.