Consider this article as a language course. At the end you should master speaking Romanian accounting. I’ll try to turn it from a rather dull and technical language into an easy to follow method of staying on top of things.
I will help you get answers to a few basic questions related to understanding what the accounting numbers mean in Romanian. The tutorial is about reading one of the most basic accounting outputs – the end of month trial balance.
Accounting gives answers to many questions, but the crucial ones are:
• What is my turnover?
• Is the business making profit?
• How much money do I have?
• How much money do I have to pay in the short run?
• How much money do I stand to receive in the near term?
If you are doing business in Romania or you are considering doing business in Romania, it would probably be a wise thing to be able to answer these basic questions and understand how your business is performing.
Financial statements are prepared in Romania only twice a year, so if you want to have timely information, you should learn to read a trial balance. A trial balance is prepared at the end of each month, but be warned – accounting is just another form of studying history so what you get at any time is at best the last month’s figures.
The Romanian format of the trial balance usually has 4 columns, each divided into 2 sections: Debit and Credit. Think of it in the following way, the balances on the debit side show the company assets, meaning the things the company spent its money on, while the balances on the credit side show where the company got its money from.
The first 2 columns of the trial balance reflect the initial balances of your company’s accounts, the next 2 columns the monthly movements, the next 2 reflect the year to date movements including the initial balances while the last 2 columns show the ending balances of your company’s accounts.
The trial balance is a collection of all the accounts used for recording the business transactions, divided into classes. In Romania, each account is given a number and it’s not uncommon for accountants to speak only in terms of the account numbers, making your life more complicated.
However, if you know a few numbers, you can sort it out eventually. I’ll point out the numbers that best answer the key questions.
Accounts starting with the number 7 point out revenues and accounts starting with number 70 point out sales, so if you want to know your total sales sum up the accounts starting with 70 and this should be your turnover. So we can tick question no. 1.
One important aspect concerning the Romanian accounting regulations is that we move the expenses and revenues to profit and loss at the end of each month, so a Romanian trial balance will never show balances for the expense and revenue accounts, that is class 6 and 7 accounts. If it does, that means you either have an incomplete or an incorrect trial balance.
Now, for question no. 2, “Is my business making profit?”, simply check account 121 which is the Profit and loss account. If its balance is on the credit side that means your company is making profit, if the balance is on the debit side that means your company is making losses. Another possibility to check whether the balance in account 121 is correct is to sum up all the accounts starting with the number 7 and subtract the sum of all accounts starting with number 6, on the year to date columns. 7 points out to revenues and 6 to expenses. If amounts in class 7 are higher than amounts in class 6, you should feel relieved – your business is making profit.
We can also tick questions no. 2.
Moving on, you want to know how much money you have on hand. That’s simple – just check the ending balance column of the accounts in class 5 that show values on the debit side. The result should answer the question, unless you have been withdrawing money from your bank account for discretionary use and your accountant built up money in the petty cash account.
Accountants usually do that, it’s not their fault – they simply follow the double entry rule (each transaction is recorded in two accounts – so if money is out from the bank account and you didn’t tell the accountant where it went, your accountant will naturally assume that it’s in the petty cash – that means you have the money available on you).
The next question is trickier because money you have to pay is spread into a bucketful of accounts (it should not be surprising as you have to pay a lot of people – suppliers, employees not to speak of taxes owed). To come up with the answer, check accounts from class 4 of the trial balance that show a credit ending balance. Usually all payables are registered here. You might also have some short term loans, so add up the amounts under the second column from right to left corresponding to the class 5.
The last questions I am going to take is about money that you stand to receive. Simply check class 4 again, but this time look for the accounts that show a debit ending balance. Those are the amounts the company is waiting to cash in.
That should wrapped it up! If you need a more detailed explanation simply give us a call and set up an appointment. We’ll be happy to assist you, after all our motto is “Guiding your investment in Romania!”
