Business Accounting Records: Complete Legal Obligations

Bookkeeping is not an annual reporting obligation: it is a continuous obligation, the regularity of which is assessed throughout the financial year. This nuance decides the outcome of a tax audit. A set of accounts reconstituted after the fact, even if accurate, shows the tell-tale signs — batched entries, discontinuous numbering, missing documents — and weakens all the positions taken by the company.

Who is concerned, and to what extent

Any individual or legal entity holding the status of trader must record chronologically the transactions affecting its assets, carry out a stocktake at least once a year, and draw up annual accounts.

The scope of the obligation then varies according to the tax regime:

• Micro-enterprise: a receipts book, supplemented by a purchases register for sales activities. No balance sheet, no profit and loss account.
• Simplified real regime: full bookkeeping, with a simplified presentation of the annual accounts and the option of recognising receivables and payables only at year-end closing.
• Standard real regime: full bookkeeping and detailed annual accounts.

An allowance exists for the smallest structures, which may keep cash-basis accounts during the financial year, provided the necessary adjustments are made at closing. This allowance concerns the timing of recording, never the completeness of the accounts.

The mandatory books

Three documents structure bookkeeping and are the first to be requested during a tax audit.

The journal ledger records transactions chronologically, entry by entry. Chronology is not a mere presentation convention: a backdated entry or one inserted out of sequence is a sign of irregular bookkeeping.

The general ledger reproduces the same entries broken down by account, according to the chart of accounts.

The inventory book, whose obligation has been eased, lists the assets and liabilities identified during the annual stocktake.

In addition to these books, companies keeping computerised accounts must be able to produce the accounting entries file in a standardised format. Its absence or non-compliance is penalised with a fine, regardless of the quality of the accounts themselves.

Supporting documents

Every entry must be backed by a dated and probative document. This is the condition that causes the loss of the most deductions, and it is purely documentary: a genuine expense, incurred in the company's interest, becomes non-deductible for lack of a compliant supporting document.

An invoice must include the mandatory particulars — identification of the parties, number, date, description, price, VAT rate and amount, mentions relating to payment terms and penalties. A card payment receipt is not an invoice: it proves a payment, not the nature or the recipient of the expense.

The rollout of e-invoicing shifts the focus. Compliance is no longer judged on the document alone, but on the reliable audit trail: the ability to link each invoice to the corresponding economic flow and settlement, in a documented and permanent manner — a requirement detailed in our article on the reliable audit trail.

Retention periods

Books, registers and supporting documents must be kept for ten years from the closing of the financial year. This period is longer than the tax authorities' assessment period, which covers the three preceding financial years — a point that leads some companies to destroy documents too early.

Two further rules apply. Documents relating to fixed assets must be kept beyond that, for as long as the asset remains on the balance sheet and during the applicable periods after its disposal, since they justify the depreciable base and the capital gain on disposal. And corporate documents follow their own retention periods, generally longer.

Retention in electronic form is permitted, provided the integrity, readability and retrievability of the documents are guaranteed throughout the period. A simple folder of files does not meet these conditions: probative-value archiving is required.

What a tax audit looks at first

The points examined are consistent from one audit to another, which makes it possible to prepare for them:

• The continuity of numbering of entries and issued invoices.
• The chronology of the records, compared against the dates of the supporting documents.
• The consistency between the bank account, the cash register and the records.
• The completeness of supporting documents, checked by sampling on the significant items.
• The consistency between VAT returns and the accounts.

Irregular bookkeeping can be disregarded, opening the way for the tax authorities to reconstitute turnover using their own methods. This is the most severe sanction, as it shifts the burden of the discussion: the company must then prove that the reconstitution is incorrect. The safeguards applicable during the procedure are set out in our article on tax audits.

Use cases

Company formation. Choose the tax regime based on projected volume, not merely administrative convenience. Switching from one regime to another during the company's life entails restatements that anticipation avoids.

Delayed entry. Catch up while respecting the actual chronology of the documents rather than recording them as of the catch-up date. A batch of entries recorded at year-end is noticeable and weakens the whole.

Closing. Check the matching items — accrued expenses, accrued income — as well as depreciation and provisions, the omission of which cannot be made up in the following financial year.

Frequently asked questions

Does a micro-enterprise have to keep accounts? A receipts book, supplemented by a purchases register for sales activities. Neither a balance sheet nor a profit and loss account is required, but supporting documents must be kept.

How long should supporting documents be kept? Ten years from the closing of the financial year, longer for documents relating to fixed assets and for corporate documents.

Is a card payment receipt sufficient? No. It proves a payment, not the nature of the expense or its beneficiary. An invoice containing the mandatory particulars is required.

Can everything be kept in digital form? Yes, provided the integrity, readability and retrievability of the documents are guaranteed throughout the legal retention period. A simple file directory is not enough.

What is the accounting entries file? A standardised export of computerised accounts, provided to the tax authorities during an audit. Its absence or non-compliance carries its own fine.

What is the risk with irregular bookkeeping? It can be disregarded, with the tax authorities then reconstituting turnover using their own methods. It is up to the company to prove that this reconstitution is incorrect.

Key takeaways

The regularity of a set of accounts rests on three observable characteristics, and an audit checks them in this order: the chronology of the records, the continuity of numbering, and the existence of a probative document behind each entry.

These three points are built up continuously and cannot be made up after the fact. Accounts reconstituted at year-end bear identifiable traces, and the risk is not the rejection of a single entry but of the whole — along with the resulting reversal of the burden of the discussion. The upside is favourable: regular and well-documented bookkeeping is what, during a tax audit, upholds the positions taken with regard to corporate taxation.