Accounting policies: what to record in your annual accounts

Accounting policies for valuation and result determination are the rules you have followed in determining the amounts in your annual accounts. They belong in the notes, so that a reader can assess whether your figures are comparable with those of another business.

The basis: historical cost or current value

Most Dutch annual accounts assume historical cost: you include an asset at what it cost, less depreciation. Valuation at current value occurs for example with investments and real estate, but it requires good substantiation and is certainly not always permitted.

What you record in any case

• •Tangible fixed assets: how you depreciate (straight-line or declining balance), over what period and from what moment.
• •Inventories: at what price you value them (purchase price, FIFO, average) and how you write down obsolete stock.
• •Receivables: that you value them at nominal value and provide for irrecoverable amounts.
• •Cash and cash equivalents: that you include them at nominal value.
• •Provisions: for which obligations you have a provision and how you determined the amount.
• •Pensions: whether you have a defined contribution scheme or a defined benefit scheme and how you account for it.
• •Taxes: that you calculate the tax expense on the result and how you deal with differences.

Consistency is the most important principle

You must keep using the same accounting policies. The same depreciation period from year to year, the same valuation method for inventories, the same moment of revenue recognition. If you change anyway, that is a change of accounting policy: you must state it in the notes and adjust the comparative figures, so that the comparison stays fair.

And if you are not a legal person?

If you do not need a statement, you can prepare your annual accounts yourself; the policies above are then your guide.

For a sole trader or VOF, Title 9 of Book 2 of the Dutch Civil Code does not mandatorily prescribe the policies. In practice you then align with the fiscal determination of profit according to sound business practice with a consistent line of conduct (article 3.25 of the Income Tax Act 2001 (Wet IB 2001)). Here too the rule applies: record what you do, and do it the same way every year.

Why it is worth the effort

Good accounting policies prevent discussion. With a financing, a takeover or an audit, the first question is always which rules have been followed. Anyone who has written that down can answer that question in one paragraph instead of searching for an afternoon. In the route of the annual accounts the accounting policies therefore come before the notes.