Accounting 12282021 1 Basic characteristic of accounting Accounting

Accounting 12/28/2021 1

Basic characteristic of accounting Accounting it is possible to characterize as a system, whose main objective is: n n Evidence and providing of information about company’s property and sources of its financing Evidence of reproduction process in a company (realization of returns and consumption of costs) For this purposes it is necessary to create the accounting system, where all these information are held. Three basic accounting statements that are parts of final accounts created at the end of annual accounting period: n n n Balance sheet Profit / lost account Cash-flow statement 12/28/2021 Accounting, Taxes 2

Ways of business activities filing Tax evidence – defined by income tax law, used by physical persons having incomes from enterprise (traders, lawyers, consultants) that are not accounting entity. Accounting – defined by accounting law, used by corporations and by physical persons that became accounting entities. Physical person – accounting entity: Returns from last year higher then 25 mil. CZK; Voluntary decision of physical person; Registration in trade register. 12/28/2021 Accounting, Taxes 3

Basic differences between tax evidence and accounting 1. Tax evidence serves mainly for the right income tax base assessment, accounting provides more complex view of the company's management. 2. Economic result is ascertained: - In tax evidence – difference between incomes and expenditures In accounting – difference between revenues (returns) and costs Incomes Expenditures Revenues Costs 12/28/2021 – accepted money in cash or on bank account – decrease of money in cash or on bank account – outputs expressed in CZK – consumption of productive factors Accounting, Taxes 4

Balance sheet n Accounting statement providing an overview about: – Property of a company, its structure and value (active capital) – Sources of property coverage (liabilities) n A company must complete following kinds of balance sheet: – Regular (completed by the last day of the accounting period) – Exceptional n n 12/28/2021 preliminary (completed by the day of a company’s creation) final (completed by the day of an ending of a company’s business activity) Accounting, Taxes 5

Balance sheet – active capital (assets) For particular kinds of the property there are described following three values: n Gross value (the origin value, a historical price of registered property) n Correction (expresses the attrition in the form of accumulated depreciation, or temporary value cut) n Net value (difference between the gross value and the correction) Active capital (assets) of a company: n Receivables for the subscribed capital n Fixed (long-term) assets – Intangible fixed assets – Tangible fixed assets – Long-term financial assets n Current assets – – 12/28/2021 Inventory Long-term and short-term receivables Short-term financial assets Other property Accounting, Taxes 6

Balance sheet - liabilities Liabilities of a company: n Equity – – Registered capital Capital funds Funds created from net (after-tax) profit (e. g. reserve fund) Economic result from previous years n n Undistributed profit fro past periods Unrecoverd lost from past periods – Economic result from current n Other sources – – – 12/28/2021 Reserves Long-term payables Short-term payables Bank loans (long-term, short-term) Other liabilities Accounting, Taxes 7

Profit / lost account n Provides information about reproduction process in a company (about costs, returns and the economic result creation) n From the profit and lost report it is possible to find out the creation of following economic results: – Economic result for the current company’s activity n n Operational economic result Financial economic result – Additional (exceptional) economic result n Profit and lost report includes the income tax creation – For the current company’s activity – For the additional (exceptional) company’s activity 12/28/2021 Accounting, Taxes 8

The cash-flow statement n n n Describes the amount and the structure of cash-flows running during accounting period in the company At the cash-flow report creation there are used data from the balance sheet and the profit and lost report Separately there are described cash-flows in the frame of operational, investment and financial company’s activity Whole cash-flows it’s possible to find out by the addition of partial cash flows: n Operational n Investment n Financial 12/28/2021 Accounting, Taxes 9

General structure of the cash-flow statement Net economic result n + depreciation of fixed (long-term) assets n +, - changes in the active assets state n +, - changes in the liability’s state Operational cash flows n + incomes from the fixed (long-term) assets sale n - purchase of fixed (long-term) assets Investment cash flows n + increasing of (bank) credits n - bank credits repayments n + increasing of long-term sources (liabilities) n + dotations n - payments of dividends Financial cash-flows n 12/28/2021 Accounting, Taxes 10

Taxes 12/28/2021 11

Overview of taxes in the Czech Republic Taxes in the Czech Republic it’s possible to divide into : n Direct – Income tax n n Of physical persons Of corporations – Real-estate tax – Road tax – Inheritance tax, tax of donation and real-estate transfer tax n Indirect – Value added tax – Consumer tax – Ecological taxes (gas, solid fuels, electricity) 12/28/2021 Accounting, Taxes 12

Income tax of physical persons is connected with following incomes: n n n Incomes from dependant activities Incomes from enterprise and other independent activities Incomes from lease Incomes from capital assets Other incomes The way of the income tax calculation: n n n Assessment of partial tax bases for particular incomes as a difference between incomes and expenditures necessary for achieving of incomes Assessment of tax base as an addition of partial tax bases Decreasing of tax base by the items of the tax-free base (presents, interest from the bank credit in the frame of building savings, interest from mortgage credit intended for living assurance, etc. ) Calculation of income tax with using of suitable tax rate (multiplication of decreased income tax base and the tax rate) Decreasing of the tax by the tax deductions 12/28/2021 Accounting, Taxes 13

Income tax of corporations n n It is calculated by the multiplication of tax rate by the tax base Tax base is assessed: Tax base = tax revenues – tax costs Where Tax revenues: revenues that, based on income tax law, are liable to income tax Tax costs: costs that based on the income tax law decrease the tax base n Tax base it is possible to decrease by the deductible items defined by the income tax law (lost from past periods, costs for realization of development and research projects) n The final tax it is possible to decrease by the tax deduction defined by the income tax law (if the company employs handicapped persons) 12/28/2021 Accounting, Taxes 14

Real-estate tax – land tax (Law n. 338/1992 Coll. , about real-estate tax) Object of the tax n Land in the Czech Republic registered in the real-estate register Tax-payer n Owner of the land, sometimes or renter Tax base n In the case of agriculture lands the tax base is defined as the price of the land established according to the special legislation n In the case of other lands (built-up area, building lands) the tax base is defined as the real land area 12/28/2021 Accounting, Taxes 15

Real-estate tax – realty tax (Law n. 338/1992 Coll. , about real-estate tax) Object of the tax n Constructions in the Czech Republic Tax-payer n Owner of a construction Tax base n In the case of building constructions is the tax base defined as a built-up area in square meters n In the case of a flat the tax base is defined as a size of a floor space of a flat in square meters multiplied by the coefficient 1. 2 12/28/2021 Accounting, Taxes 16

Road tax Law n. 16/1993 Sb. , about road tax Object of the tax n Vehicles intended for business Tax-payer n Owner of a vehicle Tax base n Engine content in cm 3 in the case of personal cars n Addition of maximal granted weights per axles in tons and the number of axles in the case of semi-trailers n Maximal granted weight in tons and the number of axles in the case of other vehicles 12/28/2021 Accounting, Taxes 17

Inheritance and donation tax Law n. 357/1992 Coll. , about inheritance tax, donation tax and real-estate transfer tax Object of the tax n Tangible or intangible property obtained with the inheritance or with the donation Tax-payer n Person obtaining property with the inheritance or donation Tax base n Price of movable and fixed property obtained with inheritance or donation n In the case of inheritance tax it is possible to decrease tax base by : – – Liabilities of testator Property freed from the tax Notarial fees Costs connected with the funeral of the testator Tax rate n Size of the rate depends of on the value of property and the relationship of the tax-payer to the testator or donator 12/28/2021 Accounting, Taxes 18

Real-estate transfer tax Law n. 357/1992 Coll. , about inheritance tax, donation tax and real-estate transfer tax Object of the tax n Transfer of the ownership of the real-estate between seller and buyer Tax payer n Usually the seller, buyer guarantees Tax base n Tax base is defined as the higher from following values: – Price assessed according to the special legislation – Selling price Tax rate n At present it is 3 % from the tax base 12/28/2021 Accounting, Taxes 19

Value added tax Law n. 235/2004 Coll. , about value added tax Object of the tax n Taxable fulfillments in the form: – – Supply of goods Providing of service Tax-payer n Final consumer Taxable person (person with duty to transfer the tax into state budget) n Producer or seller, whose returns for 12 months is higher then 1 mil. Kč, or person voluntary registered as a taxable person) Tax base n Price of taxable fulfillment (price of goods or services) Rates of value added tax n Basic rate 20 % n Reduced rate 10 % (since 2008) Period of taxation n 1 month in the case, when annual returns are higher then 10 mil. Kč n 1 month based on voluntary decision of the taxable person in the case, when annual returns are higher then 2 mil. Kč and lower then 10 mil. Kč n Quarter in the case, when annual returns are lower then 10 mil. Kč 12/28/2021 Accounting, Taxes 20

Consumer tax Law n. 353/2003 Coll. about consumer taxes Object of the tax n Mineral oils, spirit, beer, wine and tobacco products Tax-payer n Final consumer Taxable person n All physical persons and corporations that produce defined products or physical persons and corporations to that defined products are imported Tax base n Amount of defined products expressed in measure units Tax rates n Defined by consumer tax law in absolute values (monetary units) per measure unit Period of taxation n month 12/28/2021 Accounting, Taxes 21