I don’t want to encourage criminality, but sometimes it’s worth breaking the law, or, certainly, convention. I don’t mean laws that protect us from seriously harming each other or ourselves. Rather, I mean the little laws, such as those about when you can cross the road, or, in this (admittedly slightly dull) case, how you do your debits and credits. Where no harm is done it’s always worth asking, does the penalty exceed the cost of compliance?
I’m not thinking of anything particularly alarming, unless you think that the way you present debits and credits is an issue of morality.
Don’t read on if you’re not remotely interested in accounting.
In a number of Eastern European countries accounting rules require that you make a distinction between a credit and a negative debit, and a debit and a negative credit. This would sound weird to most of the world’s accountants. In most of the world, the opposite of a credit is a debit and the opposite of a debit is a credit and that is the end of the matter. There are debits and credits and no other kind of transaction.
Not so in parts of Eastern Europe. If you make a mistake in your accounting system, you do not ‘correct’ a debit with a credit but with a ‘negative debit’. This enables the reporting of both credit and debit ‘turnover’ on an account, ‘turnover’ consisting of debits and their correcting negative debits, and credits and their correcting negative credits. ‘Turnover’ is something that the tax inspectors look at with quite remarkable enthusiasm, but I am not sure why.
Most Western accounting software packages don’t handle this well. They are built to handle just debits and credits, but convention, if not law, requires that when the tax inspector comes knocking on your door in Budapest, or Sofia, or Bucharest, or when they bash your door down in Moscow, you must serve up reports that show ‘turnover’. Never mind that your business obtains no benefit at all from this.
But what happens if you can’t?
I remember doing some consulting in Bucharest, many years ago. During a system design workshop (we were putting in SunSystems) the chief accountant went on at length about negative debits and credits.
‘We have to have them,’ she said.
Her boss, the British Finance Director began to look concerned, so I tried to demonstrate some workarounds. But the chief accountant was adamant. I suggested some more expensive workarounds, maybe five days of work. Finally it occurred to me to ask:
‘What happens if you can’t show these negative and debits when the tax inspector comes?’ I asked.
‘Well, you may be fined.’
‘About 50 dollars.’
Not much. Indeed, immensely less that the cost of working around the constraints of the software to make the right reports possible.
The Finance Director looked relieved and we quickly moved on.
The moral of this story is this always work out if it’s really worth doing something that brings you no benefit, even if it seems wrong.
Someone may tell you you’ve got to do it, but always ask, ‘What happens if I don’t?’