Business Accounting: Complete Legal Obligations

Bookkeeping is not an annual filing obligation: it is a continuous obligation, whose regularity is assessed throughout the fiscal year. This distinction determines the outcome of a tax audit. Bookkeeping reconstructed after the fact, even if accurate, shows telltale signs — batched entries, discontinuous numbering, missing documents — and weakens all of the positions taken by the company.

Who is concerned, and to what extent

Any individual or legal entity holding the status of merchant must record chronologically the movements affecting its assets, carry out an inventory at least once a year, and prepare annual accounts.

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

• Micro-enterprise: a revenue book, supplemented by a purchase register for sales activities. No balance sheet, no income statement.
• Simplified real regime: full bookkeeping, with a simplified presentation of the annual accounts and the option to record receivables and debts only at closing.
• Standard real regime: full bookkeeping and detailed annual accounts.

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

The mandatory books

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

The journal book records movements chronologically, transaction by transaction. Chronology is not a matter of 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 inventory.

In addition to these books, companies keeping computerized accounts must be able to produce the accounting entries file in a standardized format. Its absence or non-compliance is punished by 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 most deductions to be lost, 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 details — identification of the parties, number, date, description, price, VAT rate and amount, and information relating to payment terms and penalties. A card payment receipt is not an invoice: it proves a payment, not the nature or recipient of the expense.

The widespread rollout of electronic invoicing shifts the issue. 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 payment, 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 fiscal year. This period is longer than the tax authorities' assessment period, which covers the three preceding fiscal years — a point that leads some companies to destroy records too early.

Two additional rules apply. Documents relating to fixed assets must be kept beyond that, for as long as the asset appears 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.

Electronic retention is permitted, provided the integrity, legibility and reproducibility of the documents are guaranteed throughout the entire period. A simple folder of files does not meet these conditions: archiving with probative value 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 records, compared with the dates of the supporting documents.
• The consistency between the bank account, the cash register and the records.
• The completeness of supporting documents, through sampling of high-stakes items.
• The consistency between VAT returns and the accounts.

Irregular bookkeeping can be disregarded, opening the way for the tax authorities to reconstruct revenue using their own methods. This is the heaviest sanction, since it shifts the burden of the discussion: the company must then demonstrate that the reconstruction is incorrect. The safeguards applicable during the procedure are set out in our article on tax audits.

Use cases

Setting up a business. Choose the tax regime based on projected volume, not solely on administrative convenience. Switching from one regime to another during the company's life requires restatements that anticipation avoids.

Late entry. Catch up by respecting the actual chronology of the supporting documents rather than recording them on the date of catch-up. A batch of entries recorded at the end of the fiscal year 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 corrected in the following fiscal year.

Frequently asked questions

Must a micro-enterprise keep accounts? A revenue book, supplemented by a purchase register for sales activities. Neither a balance sheet nor an income statement is required, but supporting documents must be kept.

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

Is a card payment receipt enough? No. It proves a payment, not the nature of the expense nor its beneficiary. An invoice containing the mandatory details is required.

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

What is the accounting entries file? A standardized export of computerized accounts, provided to the tax authorities during an audit. Its absence or non-compliance is punished by its own specific fine.

What is the risk of irregular bookkeeping? It can be disregarded, with the tax authorities then reconstructing revenue using their own methods. It is up to the company to demonstrate that this reconstruction is incorrect.

Key takeaways

The regularity of bookkeeping rests on three observable characteristics, and a tax audit checks them in this order: the chronology of 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 caught up on later. Bookkeeping reconstructed at the end of the fiscal year bears identifiable traces, and the risk is not the rejection of a single isolated entry but of the whole set of records — with the accompanying reversal of the burden of the discussion. The upside is favorable: regular, well-documented bookkeeping is what, during a tax audit, makes the positions taken regarding corporate taxation.