top of page

How to read a Romanian trial balance

Updated: Dec 27, 2023

The trial balance - or, for short, the balance - represents the mirror of a company’s activity. All the operations reach the accounting document called the trial balance. Sooner or later I will need to understand it in detail so that I can better coordinate my business - therefore I can already start by forming an overall impression on the types of information that the balance may offer.

An iMac with the words "How to read a Romanian trial balance" and "Cum citesc o balanta" written on it

At the same time, the balance is the mirror of my accountant's activity. This is exactly why I have to check it all the time. The most visible example is if I decide to close the company - when the lack of assets and the existence of very large debts allow late conclusions to be drawn: either not including all expenses in accounting, or leaving suppliers’ advances, or simply subsidising personal activities on the company’s back and with the money of the suppliers - all these negative habits will have repercussions in the end. It is good to understand this before I get to want to do exit and actually discover that I have very high taxes to pay, that I get cross-checks, that I have a tax record, that I cannot open another company.


var trialBalance: Bool = true

An extremely important first rule: I must ask my accountant to share with me, on a monthly basis, the balance in both synthetic format as well as, especially, in analytical format. It is important for me to be able to differentiate between the synthetic balance and the analytical balance: the synthetic balance is the folded, compressed version, at the level of totals, while the analytical balance, unfolded, allows me to easily see if my accountant has worked correctly, if the accountant has processed all the documents I have provided - and has respected all accounting rules and regulations.


var syntheticBalance: Bool = true
var analyticalBalance: Bool = true

I start by familiarising myself with the main categories of accounts. In the Romanian accounting, there are seven main categories - or Classes:

  • Class I represents the added value of the company, what it had accumulated since its inception. The name of this Class is Equity.

  • Class II is for fixed assets, meaning tangible and intangible assets which, in a similar manner, the company has accumulated during its existence.

  • Class III is for inventory. If my business is about trade, here is where I will see what is the value of the goods I have in my store. I can, thus, make sure that there is a correspondence between quantity and value. If my accounting firm also keeps track of the quantitative accounting of inventory, I must also ask for a quantitative-and-value inventory balance.

  • Class IV is for payables and receivables.

  • Class V is for cash liquidities.

  • Class VI is for expenses.

  • Class VII is for revenue.


Up until Class V, I will find the actual account balances in the balance, in the column of ending balances. Class VI and Class VII do not have ending balances, because they close each month and go into the profit or loss account, coded 121. Detailing each Class would be useful:



Class I. Equity

 

It is worthwhile asking the accountant for a balance with the account names on it, not just their numeric coding. For instance, if I want to see what profit or loss I have, I look at the account 121 - which is named exactly like this: profit or loss account.


var equity: Int
var profitOrLossAccount: Bool?

Two scenarios:

  • if I notice a balance on debit, i.e. if a number different than 0 shows up on the debit column, it means my company has a loss;

  • if I notice a balance on credit, i.e. if a number different than 0 shows up on the credit column, it means my company has a profit. This is the accounting profit that my firm has made.


var debit: Int?
var credit: Int?

In Class I it is important to analyse the retained earnings account, coded 117: if I observe a balance on debit, i.e. if a number different than 0 shows up on the debit account, this means that my firm has a loss which it has accumulated over the years, which sits as a heavy burden on my shoulders, and the company, at some point, risks getting stuck and not being able to function anymore.


var retainedEarningsAccount: Int?

Regarding the debt accounts, I must be extremely careful when looking at the bank loans account, coded 162. If I have taken loans in a foreign currency then I must ensure I have enough liquidity to cover the amount I have in the bank repayment schedule, multiplied with the currency exchange rate at the end of the month.


var longTermBankLoansAccount: Int?

In the account for other loans and assimilated debts, coded 167, I will find the leases which I took to operationalise my firm’s activity: cars, equipment, machinery, installations. Also, I need to look at the bank’s repayment schedule, to see the value of the remaining leasing payment: the rest of the tranches to be paid multiplied with the currency exchange rate at the end of the month. In this account, I will also find the guarantees to return to suppliers, for contracts with a duration longer than one year. One of the reasons why it is very important to ask my accountant for a monthly analytical balance, unwrapped, is that, for each leasing contract and for each guarantee to return, I will find an analytical sub-account in the analytical balance, for instance:

  • 167.01 leasing contract 1;

  • 167.02 leasing contract 2;

  • 167.03 leasing contract 3.


var otherLoansAndSimilarDebtsAccount: Int?

After in Class I of accounts I could see what is the added value of the company, which has accumulated since its establishment, in the next class I will see what are the fixed assets of the company:


Class II. Fixed assets

 

I have to start by asking the accountant for a register of fixed assets, because I have to see, literally, what I have in the company. The value on the debit of the balance is where I will find the buildings (account 212), the cars (account 213), the furniture (account 214) - at the purchase value of the goods. If I deduct from the entire Class II the credit balance of the amortisation and depreciation accounts (account 280 amortisation of intangible assets and account 281 depreciation for tangible assets), I will obtain the unamortised value of the fixed assets that I still have to depreciate on costs - and that I must consider when I make the business plan, because, for me, this is a cost that I have to recover. If I sell at a lower price than the one which includes this depreciation component, without getting a margin to cover all expenses, then it will be difficult for me to go further, because, at some point, I will reach a stumbling block.


var buildingsAccount: Int?
var plantMachineryAndMotorVehiclesAccount: Int?
var fixturesAndFittingsAccount: Int?
var amortisationOfIntangibleAssetsAccount: Int?
var depreciationOfTangibleAssetsAccount: Int?


Class III. Inventories

 

In the category of inventory accounts, I have the raw materials account (coded 301), the consumables account (coded 302), the materials in the form of small inventory account (coded 303), the goods purchased for resale account (coded 371), the work in progress account and, respectively, services in progress (coded 331 and 332, respectively), the finished goods account (coded 345).


var rawMaterialsAccount: Int?
var consumablesAccount: Int?
var materialsInTheFormOfSmallInventoryAccount: Int?
var goodsPurchasedForResaleAccount: Int?
var workInProgressAccount: Int?
var servicesInProgressAccount: Int?
var finishedGoodsAccount: Int?

These accounts always have debit balances. In them are found the inventories of finished products or unfinished production that I have in the company's patrimony, which I have not yet sold, I am going to sell - and from here I am going to obtain the source of financing to go on with the company.


Class IV. Receivables and payables

 

The most important account here is the customers’ account, coded 411. Here are the invoices I have to collect. It is very important to have an analytical balance in order to understand this account: if I do not have the details of the Invoices by age and the 3 years in which I had the right to sue the bad payers are already passed, I can say goodbye to those amounts, and I will reduce the profit with the respective amounts. So, it is crucial to ask the accountant for the analytical balance, to reconcile with what I know is collected - and I must permanently and consistently act to recover the money.


var customersAccount: Int?

A negative example with very serious consequences: if I have credit balances - i.e. account 411 has a balance on the ending credit balance column - this means that I have collected and not issued an Invoice, or the accountant has not entered the Invoice in the accounts. What does this error mean? It means that, for the missing invoice, I did not pay the VAT, if my company is a VAT payer, I did not pay the profit tax or the income tax of the micro-enterprises - which generates costly increases and penalties, which I will also have to support from profit. If I did not foresee this risk as a margin, in the selling price of goods or services - the risk is that, at some point, I will have to pay increases and penalties, I will not be able to cover them, and they will accumulate in the loss I will record.

For accounts on credit - all accounts of suppliers, coded 401 - I also need to ask the accountant for an analytical balance, in which I will have, in a mirror, what I have to pay: I must ensure there are no bills double recorded, meaning that I benefited from a tax benefit, lowering the VAT, I also benefited from the expense, which, in the same way, attracts some consequences. I have to ask for the analytical balance for the suppliers and to reconcile the suppliers I still have to pay: for any discrepancy, I have to ask the accountant for an account sheet, which we can reconcile together.


var suppliersAccount: Int?

In the balance, I can also find the account of advance payments to suppliers, coded 409. Again, I have to ask the accountant for an analytical balance and an account statement, which we should reconcile, because this account is what I paid to the suppliers as an advance, and they have not yet delivered the good or service - so I need to ask for a Cancellation Invoice and be able to receive the good or service in the company's patrimony.


var advancePaymentsToSuppliersAccount: Int?

In the mirror, on the credit side, I find the account of advance payments from customers, coded 419, which is the account of advances received by my company from customers to whom I have not yet delivered the products or services. Likewise, I have to invoice it, because it must always correspond to the maximum duration term of the advance in the contract, because its non-recognition in the Profit or Loss Account, at the maturity of the contract, also generates increases and penalties for non-declaring and non-paying of profit tax and VAT, which may fall under the scope of the Law for Preventing and Combating Tax Evasion.


var advancePaymentsFromCustomersAccount: Int?

Salary accounts, social security contributions, social health insurance, occupational insurance contribution, including payroll tax, all have ending credit balances and represent, in fact, the salary obligations I have to pay in the last month. If I ask the accountant for a balance in June, for example, I need to already have my payroll from June. What I have on the payroll as payment obligations must be reflected in the accounting.

To make sure that the taxes are declared correctly and that I do not have any missing tax return, I can ask the accountant, on a monthly basis, for a tax certificate. Thus, I will have the certainty that taxes were calculated correctly, that all tax returns were submitted on time - and I can prevent unpleasant situations that can even lead to blocked accounts.


var taxCertificate: Bool?

The profit / income tax account, coded 441, always has a credit balance.


var incomeTaxAccountOnCredit: Bool = true

The VAT payable account, coded 4423, is applicable to companies that are VAT payers - and, in the same way, always has a credit balance, which represents the amount I am obliged to pay.

The VAT receivable account, coded 4424, shows me the moment when the investments I have made in the company have exceeded the value of the VAT collected from the sales. The notion of Value Added Tax means that, if I do not make investments, I have VAT to pay - therefore, the alternative for me is to bring value to the VAT from suppliers.


var vatPayableAccount: Int?
var vatReceivableAccount: Int?

I have to be very careful when I find in the balance the suspense account, coded 473, because this is a settlement account where I can find various issues from operations being clarified: unprocessed documents, transactions without supporting documents etc. This account must always be zero, not with a balance on it - and especially not a large one. I must only allow the accountant to keep this account’s balance on zero.


var suspenseAccount: Int?

I must also pay close attention to the sundry debtors account, coded 461, because of the following negative example: shareholders, who collect dividends but do not want to pay the dividend tax, distribute everything in this account, in the hope that no one will control them. But all the inspection agents that come - Tax Agency, Antifraud - look first at this account, because this is money taken out of the company for which the respective shareholders did not pay tax. The inspectors will calculate taxes, increases and penalties, starting from the first amount that the respective shareholders have collected.


var sundryDebtorsAccount: Int?

The sundry creditors’ account, coded 462, represents, in fact, the guarantees I have received, with a term of less than one year, and which I must, of course, return to the customers - or amounts received as loans from people who are not shareholders of the company.


var sundryCreditorsAccount: Int?

Another account that must have a credit balance is the dividend payable account, coded 457. These are the dividends that I did not collect - and for which I paid or will pay the dividend tax.


var dividendsPayableAccount: Int?


Class V. Liquidities

 

Class V includes, among other sources of liquidity, all the balances I have in the bank. For each bank account I have opened, I have to find an analytical sub-account in the accounting records. When I look at the analytical balance, I will see that I have an analytical sub-account for each account in each bank. If I notice either that I do not have a value, or that the values do not match, it is because the account statements were not processed by the accountant - so we have to speak to about it. This aspect reopens the discussion with the integration between the various accounting software in Romania and the banking platforms, so that the import of the bank statements takes place automatically, through API, as well as the reconciliation between the issued invoices and the receipts from the bank.


The petty cash in RON account, coded 5311, must always have my attention. The debit balance that I have in this account represents, in fact, the cash that I need to have in the company, at any time. If I do not have it, I have to pay tax on dividends. It is not a good idea to let this account accumulate debits, because I will pay increases and penalties on it for dividends collected but undeclared and untaxed.


var pettyCashAccount: Int?


Class VI. Expenses

 

If I look at the balance of this class, I will find an analytical account for each expense. It is good to look very carefully at the account for other third-party services, coded 628, because it also attracts the attention of the control bodies. I must be careful that this account does not become a recycling point for invoices where there is not enough information to properly account them.


var otherThirdPartyServicesAccount: Int?

Everything that the shareholder buys in personal interest is accounted for in the account for other operating expenses, coded 6588. When an inspection comes, the Tax Agency looks at the amounts in account 6588 and I will have to pay all taxes and salary contributions, both employee and employer.


var otherOperatingExpensesAccount: Int?


Class VII. Revenue

 

In the revenue category, there are several accounts I need to keep in mind:

  • If I have a trading activity: the account for the sales of goods purchased for resale, coded 707, will have the highest value.

  • If I provide services: the account for revenue from services rendered, coded 704, is the one that will have the highest value.

  • If I offer rent: I have to pay attention to the rental income account, coded 706.

  • If I have a production activity: the account for sales of finished goods, coded 701, will be of particular interest to me.


var saleOfGoodsPurchasedForResaleAccount: Int?
var servicesRenderedAccount: Int?
var rentalAndRoyaltyIncomeAccount: Int?
var salesOfFinishedGoodsAccount: Int?

Class VII minus Class VI must always return the balance of account 121. In other words, if the income is higher than the expenses I will make a profit; otherwise, I will make a loss. It is good to think about what I will do next if I have a debit balance of account 121.


Q&A

 

A number of questions (Q) and answers (A) appear often in relation to the trial balance:


I have several companies in Romania. For each one of them I receive, every month, an analytical balance. Does it make sense to ask the accountant for the consolidated version as well, one trial balance for all my firms?

From a technical point of view, there is accounting software that has this function, to generate the consolidated trial balance. From a fiscal point of view, however, there are several criteria regarding turnover, number of employees etc. which must first be fulfilled before preparing consolidated financial statements, in order for that consolidation to make sense.


Do the tax authorities look at the companies belonging to the same shareholder separately or altogether?

The tax authorities have an overall approach. For example, the revenue threshold at which a company must register for VAT purposes is RON 300 000; there are cases of businesspeople who open a company, bring it close to the threshold just to benefit from the competitive advantage of being non-VAT payers, then abandon it and start another. This approach is not fair: the company has already displayed continuity on its customer contracts and, suddenly, these contracts are interrupted and moved to the new company. The Tax Agency may also consider the revenues from the new company as belonging, in fact, to the former, to consolidate them, and then to demand the payment of VAT on the entire amount. It is easy for the tax authorities to identify the same shareholder in multiple companies and to take it from there, especially that, recently, it has become possible for the same individual shareholder to be a sole shareholder in several companies.


What are the most common mistakes that shareholders and company managers make - mistakes that are easily visible in a Balance Sheet?

The first mistake is trying to reduce taxes at any cost. There are so-called business people who collect invoices from any kind of supplier, but not with the purpose of purchasing actual goods and services; thus, these amounts remain in the account of advance payments to suppliers, coded 409, which means that the Profit or Loss Account is not affected. But the resulting high profit does not express reality. These so-called business people collect their dividends from the alleged profit they “earned” by not paying their suppliers, and, at some point, they discover that they can no longer cope: they no longer have the necessary liquidity. Their suppliers place them in insolvency, or the bank does not extend their line of credit, because it sees they have very large, unpaid debts, while having constantly consumed the company's liquidity.


A second mistake is not to record all invoices from suppliers on time, for various reasons: because the shareholder or administrator does not receive invoices on time from suppliers, or because the shareholder or administrator forgets to redirect invoices in time to the accountant. The shareholder or administrator of the company identifies in various files, only after one month, documents related to the previous month. Or, the accountant contacts the administrator: “a payment appears in my account statement, but I have not received the corresponding invoice from you”. These invoices will have to be recorded in the accounts, even late, but the responsibility remains with the administrator, and the consequences are quite serious. There is a legal provision, according to the Government Emergency Ordinance no. 114 of 2018, by which the Tax Agency establishes certain categories of tax risks: these risks depend on declaring or non-declaring Invoices in Tax Form 394, as well as on missing the tax deadlines. The Tax Agency, based on this assessment, can classify a company in the category of high tax risk, which leads to tax inspection.

But the most important thing, beyond looking at the problematic accounts as a whole, is to show specificity, to analyse the context depending on the applicable case.


For instance, in case of a company that is a service provider, I look at the account for other third-party services, coded 628, and at the account for other operating expenses, coded 658. If the main conclusion is that subcontracting to other companies represents the lion share, leaving only a small part for self, which can even drive to a loss, then that business is not stable.


Another example: in case of a trading company, I look at the expense account with the goods for resale, coded 607, and at the revenue account from the sale of the goods purchased for resale, coded 707. I calculate the difference and see that it is very small: it is hard to believe that this is a stable business and that it can cover the expenses long-term. Unless the business is online trading and has no costs with employees, rent etc. - or if it is a large retailer which works on a minimum profit to demonstrate support for sustainable development.


In the case of a restaurant or a confectionery, the cost of goods sold may be almost as high as the revenue. I can compare the raw materials expense account, coded 601, with the sales of finished goods revenue account, coded 701: if the difference is low, then the degree of profitability of the business is also low.


I own an IT company and I am beginning to realise the importance of the trial balance correlations. I have made my own mini-ERP, so if my accountant could provide me with real-time trial balance data, I might be able to know certain things in real-time, to improve my management decisions, without having to wait for the next month’s balance. What data should I ask from the accountant - and in what format - so that it is easy for both of us?

It is better to ask the software developers if the accounting software in Romania allows API with an ERP. Most accounting software in Romania, however, does export the analytical balance to Excel. There is software that can export the analytical balance of suppliers and customers on a single balance, while other software can only generate the analytical balance of suppliers and the analytical balance of customers separately. The visual impact is important: there are companies that have hundreds of pages on a trial balance - and then it is good to ask for both an analytical and a synthetic balance: in the synthetic balance I will see these accounts of suppliers and customers as global amounts - which allow me to then go to the analytical balance to see each customer or supplier in detail. The analytical balance includes the suppliers and customers balance.


For example, if, in the synthetic balance, I identify RON 1 000 in the suppliers’ account, I can go into the analytical balance, to account 401, where I will identify, for instance, the analytical accounts 401.01 Supplier 1, 401.02 Supplier 2 etc. All amounts from the analytical balance, added up, must correspond to the total from the synthetic balance. Some accounting software, however, does not work with such analytics; instead, it uses the supplier's tax code to keep track of them, for example - but the tax code does not show up in the trial balance, one of the reasons being the limitation of the number of characters - so I have to export both an analytical balance, as well as an analytical balance for suppliers and one for customers.


Every month, the accountant has to send me a balance of suppliers and clients, which I have to confirm. It is a simple communication exercise. If invoices from suppliers are correctly recorded, if invoices to customers are correctly recorded, if advances and inventories are checked, then the key points are well covered. Otherwise, I walk on quicksand.


In order to be able to better control my business, I can ask the accountant for a detailed ledger, where I see the details at Invoice level, and I can sort the information on the accounts.


Or, if I am interested in a more general level, not so detailed, I can ask for an analytical balance for the suppliers and one for the customers, with initial values. This way I can compare the initial value with the final values, and, if they are equal, it is clear that either I have supplier balances from previous years that I did not pay, or, in the mirror, customer balances that I did not collect.


I can also ask the accountant for an analytical balance on advances paid to suppliers and an analytical balance on advances received from customers. These analytical balances allow me to analyse my cashflow, because, always, the customer balance must be higher than the supplier balance; this is how I ensure the stability of my business.


I can ask the accountant, as well, for an analytical balance of expenses and an analytical balance of revenue.


Also, I can ask the accountant to send me, on a monthly basis, the purchases ledger and the sales ledger. This way I can see what I invoiced - the sales ledger - and what I bought - the purchases ledger. The value in the sales ledger must be higher than in the purchases ledger because this is the raison d’être of a Company. The purchases ledger may have a higher value than the sales ledger when I start investing; for example, I had a profit from previous years that I did not collect as dividends - and I started investing to grow the business: investing in people, making applications to automate certain flows, or even to sell on the market in the next period.


Therefore, in order for me to run my business with my own custom tools, these are some of the documents that my accountant can share with me in Excel every month - or upload to a drive. I will be able to automate receiving them and integrating them into my mini-reporting system, which allows data interpretation and correlation with other data that I do not necessarily find in accounting.


As an IT company owner, do I need to pay attention to certain accounting signals?

In the relationship between the IT firm and the accounting firm, sometimes there may be communication problems: everything the IT firm does for a software application (that it registers for copyright, as a trademark, until the app development is completed) must not affect the expenditure, but must be capitalised in the accrued revenue account, coded 471. Only when the app is completed, only then must it be taken to the account for concessions, patents, licences, trademarks and similar rights and assets, coded 205 - and is amortised, from a tax point of view, in an interval of 3 years. I must pay close attention to this detail: the lack of communication between the IT company director and the accountant may lead to the wrong classification.

There are also cases in which the owner of an IT company says “I do not want to capitalise because I do not want to pay income tax” - but, in case of a tax inspection, the tax inspectors will reconsider the expense: they will not consider it tax-deductible if the company is a profit tax payer, because, in fact, it had to be capitalised.


◆◆◆


ℹ️ Equally important to understanding the Balance Sheet is, in turn, knowing the tax deadlines and the tax calendar: this is essential because it allows me to optimise my cashflow. I also need to keep an eye open for tax deferral opportunities, when interest and penalties for delayed tax payment are not charged - as is the case, for example, during a pandemic.

留言


留言功能已關閉。
bottom of page