Accounting Policies and Tax Treatment

Contents

1. Summary of significant policies
2. Basis of recording and system controls
3. Chart of accounts and control accounts
4. Revenue and trade receivables
5. Customer advances and unallocated receipts
6. Irrecoverable debts
7. Purchases, inventory receipts and trade payables
8. Value-added tax — VAT201 derivation
9. Employee costs and employees' tax
10. Property, plant and equipment
11. Foreign currency
12. Period end, year end and conversion
13. Group reporting
14. Reconciliation controls — books health review
15. Limitations
16. References

1. Summary of significant policies applied by the system

• Double-entry integrity: every source document posts a balanced journal entry; the document and its entry are committed atomically. Postings into closed or locked periods are rejected.
• Immutability: issued and posted documents are not amended; corrections are effected by reversing entries, and both the original and the reversal remain in the ledger.
• Transaction date: entries carry the source-document date in South African Standard Time, not the capture date.
• Functional and presentation currency: ZAR. Foreign-currency transactions are recorded at the spot rate on the transaction date; realised exchange differences are recognised in profit or loss on settlement.
• Revenue: recognised on issue of the tax invoice; cost of inventory sold is recognised at the same time (perpetual inventory).
• Receivables: carried at invoiced amounts less settlements, credit notes and specific write-offs.
• Customer advances: presented as a contract liability until applied; output tax follows the time-of-supply rule.
• PPE: cost model; depreciation monthly from the month of acquisition to residual value.
• VAT: output and input tax are recognised in the ledger at the time of supply; the VAT201 is derived from the ledger in the SARS field structure.
• Sub-ledger reconciliation: receivables, payables, customer advances and PPE are reconciled to their control accounts by a built-in report.

2. Basis of recording and system controls

2.1 Posting rules

2.2 Access control and audit trail

• Role-based access: users are assigned roles (admin, staff, read-only) and named permissions such as finance view / create / edit, approvals and report export. Posting-sensitive actions (period close, year-end close, opening balances, account changes) require an administrator.
• Segregation in payments: supplier payment runs must be approved by a user other than the creator before export.
• Audit trail: every creating, changing or deleting action is logged with the user, date and time, action, record type and record number. The software provides no function to amend or delete audit records.
• Multi-entity: each company has its own database (its own books). One login may be granted access to several companies by each company's administrator.

3. Chart of accounts and control accounts

The default chart below is loaded per company and may be extended. Accounts marked * are control accounts: they are maintained solely by source documents and cannot be selected on bill or invoice lines. System accounts required by a posting rule (e.g. 7200, 1650, 8100, 2250, 9999) are created automatically on first use if missing.

4. Revenue and trade receivables

4.1 Document lifecycle

Draft → issued (posted) → partially paid → paid; or issued → cancelled (reversed). Lines can only be added or changed while the invoice is a draft. Issuing fixes the totals, posts the journal and deducts stock in one transaction.

4.2 Recognition and measurement

• Revenue and the receivable are recognised on issue of the tax invoice, at the invoiced amount.
• Each line carries a VAT classification — standard, standard (capital goods), zero-rated, zero-rated export, exempt — and may be allocated to a specific income account (default 4000). A 0% rate alone does not distinguish zero-rated from exempt, so exempt lines must be classified explicitly.
• Where an invoice has lines on more than one income account, net revenue (after any invoice discount and currency conversion) is apportioned to the accounts in proportion to the line totals.
• Stock items sold are derecognised and cost of sales recognised (Dr 5000 / Cr 1500) on issue.
• Amount paid and balance due are always recalculated from the settlements recorded against the invoice (payments, applied credit notes, applied receipts, write-offs, and amounts settled before conversion); they cannot be typed in.

4.3 Journal entries

Example — supply of R1 000 at the standard rate, then paid:

4.4 Settlement and statements

• All receipt channels — manual capture, bank-statement matching, the customer portal and card-payment gateway — apply the same settlement and posting logic.
• A payment cannot exceed the balance due through the portal; it cannot be recorded on a draft or cancelled invoice.
• Statements of account are generated from a single customer sub-ledger: each movement is presented once; drafts and cancelled documents are excluded; the opening balance equals cumulative movements before the statement period. The closing balance reconciles to open invoice balances less unapplied credit notes and unallocated receipts. Ageing (current, 1–30, 31–60, 61–90, over 90 days) is by due date.

5. Customer advances and unallocated receipts

5.1 Tax principle

The time of supply is the earlier of the issue of the invoice or the receipt of any payment of consideration. A deposit that does not form part of the consideration does not trigger the time of supply until it is applied as payment (VAT Act s9(1); VAT 404 para 5.2.1). The system therefore requires each receipt not linked to an invoice to be classified:

5.2 Rules

• A receipt may be allocated in parts to several invoices of the same customer, and partly refunded. Allocations cannot exceed the unallocated amount or the invoice balance, and cannot be dated before the receipt or the invoice.
• The output tax released on each part is the proportional share of the tax on the receipt; the final part takes any rounding remainder.
• An allocation can be reversed; the reversal is posted and the original allocation is retained (marked reversed) for the audit trail and the VAT201.
• A receipt can be cancelled only while nothing has been allocated or refunded.

5.3 Example across two VAT periods

An advance payment of R1 150 is received in October for an installation invoiced in November at R2 000 + VAT (R2 300).

6. Irrecoverable debts

6.1 Measurement and tax

• Specific write-off of an identified irrecoverable balance, in full or in part, against 7200.
• Input tax is deducted at the tax fraction of the original supply, calculated as the invoice's VAT ÷ the invoice total, applied to the amount written off (VAT Act s22; VAT 404 para 9.2). VAT201 Field 17.
• The deduction is elective per write-off. The system warns that it is not available to a vendor on the payments basis, on supplies to a wholly-owned member of the same group of companies, on goods repossessed or surrendered under an instalment credit agreement, or on debts transferred on a non-recourse basis.
• For receivables brought over at conversion (whose VAT is not on file), the VAT included must be entered and may not exceed the amount × 15/115.
• A write-off can be reversed only while no recovery has been recorded against it.

6.2 Recoveries

A later receipt on a written-off debt is accounted for as a recovery: Dr Bank / Cr 7200 / Cr 2200, with output tax at the same fraction as the deduction claimed (VAT201 Field 12). The customer statement shows the debt reinstated and the receipt.

6.3 Example — partial write-off

Invoice R2 300 (incl. VAT R300); R1 150 received; R575 written off as irrecoverable.

7. Purchases, inventory receipts and trade payables

7.1 Supplier bills

• A liability is recognised when the supplier's tax invoice is posted. Each line is allocated to an expense, asset or liability account (control accounts excluded; default 7000; default 2150 for lines billed against goods received on a purchase order).
• Input tax per line may be captured as stated on the supplier's tax invoice; otherwise it is calculated at the line rate. Subtotal, VAT and total are derived from the lines and cannot be entered directly.
• The bill's input-tax category determines the VAT201 field: capital goods (14), capital goods imported (14A), other (15), other imported (15A).
• A posted bill cannot be edited (other than notes and due date) or deleted; it is cancelled by a reversing entry, provided nothing has been settled against it.

7.2 Goods received not invoiced

Inventory received against a purchase order is recognised on receipt at the order cost. A bill created from the order is built from the order lines: quantities received are charged to 2150 (clearing the accrual) and lines not received (e.g. services) to 7000. Price differences between the receipt and the bill remain on 2150 for reconciliation.

7.3 Supplier credit and debit notes

• Credit note received: Dr 2100 / Cr line accounts / Cr 1200 — a reduction of input tax reported in Field 12 ("credit notes received"). It may be applied to an open bill of the same supplier as a non-cash settlement.
• Debit note received: posted as an additional payable bill (Dr line accounts / Dr 1200 / Cr 2100), reported in Field 18 ("debit notes received").
• Posted notes are fixed; cancellation reverses the journal (for a debit note, its bill) provided nothing has been applied or paid.

7.4 Payments and payment runs

• Payments: Dr 2100 / Cr Bank, with realised exchange differences to 8000 on foreign-currency bills. Manual capture, bank matching and payment runs share the same logic.
• Payment runs: draft → approved (by a second user; supplier banking details are fixed at approval) → exported → paid. The system initiates no payment; the company submits the bank file, and the settlements post only when the run is confirmed as paid.
• The supplier statement is generated from a single supplier sub-ledger on the same principles as the customer statement; its closing balance equals the payables control account.

8. Value-added tax — VAT201 derivation

8.1 Method

• The return is prepared from the ledger for a chosen tax period in the field structure of SARS guide GEN-ELEC-04-G01 (Revision 11, effective 12 May 2025). The vendor submits it on eFiling; the system does not submit returns.
• Every VAT amount is taken from the VAT accounts (2200 output, 1200 input). The source document of each journal entry determines the field.
• Fields 1 and 1A are reported inclusive of VAT; Fields 4 and 4A carry the output tax from the ledger. Where an invoice mixes standard and capital-goods lines, the ledger output tax is apportioned between 4 and 4A.
• Field 20 is reconciled to the net movement on 2200 and 1200 for the period; any difference is reported.
• When Field 2A, 14A or 15A has a value, the user is reminded that the customs code is required on eFiling.

8.2 Field mapping

9. Employee costs and employees' tax

9.1 Calculation

9.2 Example — monthly payslip, November 2026

Employee aged 35, gross remuneration R30 000, retirement fund R2 250, medical scheme R3 000 (employee plus one dependant), employer registered for SDL. Calculated by the system:

Net pay is credited directly to Bank on the payslip date; there is no separate salaries payable (net pay) control account.

9.3 Declarations

• EMP201: PAYE, SDL, UIF (employee and employer) and ETI from issued payslips whose period ends in the month. Due on the 7th of the following month, or the last business day before it when the 7th falls on a weekend; public holidays are not applied.
• EMP501 / IRP5 / IT3(a): reconciliation and the e@syFile import file, built to SARS BRS "PAYE Employer Reconciliation" V25.3.0. Scope: monthly-paid employees who are natural persons with an SA identity number, remuneration on source code 3601, retirement fund fringe benefits, medical scheme contributions and the ETI block. Items outside this scope are reported as validation errors rather than written to the file. Rand amounts drop the cents except on the codes for which the specification keeps them.

10. Property, plant and equipment

10.1 Initial recognition

At cost (excluding recoverable VAT), through the supplier invoice posted to the PPE cost account (default 1650) or through the opening balances. The fixed-asset register records the asset but does not re-post its cost; register and ledger are reconciled automatically (section 14). Assets recorded with a nil cost are tracked for custody only and not depreciated.

10.2 Subsequent measurement — cost model

• Depreciation is charged monthly from the month of acquisition (full-month convention) and stops at the residual value.
• Straight-line: (cost − residual value) ÷ useful life ÷ 12 per month. Diminishing balance: carrying amount × (1 ÷ useful life) ÷ 12 per month.
• A depreciation run charges every month not yet charged up to the run date (catch-up), and cannot charge the same month twice. Entry: Dr 6100 / Cr 1600, one entry per run with a schedule per asset.
• Assets under maintenance continue to be depreciated; only disposed assets stop.
• Cost and accumulated depreciation cannot be edited directly. Assets brought over from a previous system carry their accumulated depreciation and the date to which it was charged.

Example — cost R12 000 acquired 15 January, useful life 1 year, nil residual: R1 000 per month; a run at 31 March charges January to March (R3 000).

10.3 Derecognition

On sale, scrapping or loss, depreciation is charged up to the month of disposal; cost and accumulated depreciation are derecognised and the carrying amount is charged to 8100. Disposal proceeds are invoiced to the buyer with the capital-goods VAT classification (Field 1A) and credited to 8100, which therefore reflects the gain or loss on disposal.

11. Foreign currency

• Exchange rates are maintained per currency pair with an effective date; a transaction uses the latest rate on or before its date. A foreign-currency document cannot be posted without a rate.
• Foreign-currency invoices and bills are translated at the spot rate on the document date.
• On settlement, the receivable or payable is cleared at the original rate and the bank at the settlement-date rate; the realised exchange difference is recognised in 8000.
• Retranslation of open monetary items at the closing rate is not currently effective (see Limitations).

Example — USD 1 000 invoice at R18.00; paid when the rate is R18.50:

12. Period end, year end and conversion

12.1 Accounting periods

Periods may be open, closed or locked. No posting is accepted into a closed or locked period — including reversals and opening entries, which must therefore be dated in an open period.

12.2 Financial year and presentation of current-year profit

Each entity defines its year-end month (default February). Until the year is closed, the statement of financial position presents profit for the current financial year in equity as "current year earnings" (measured from the entity's own year start) and any unclosed profit of earlier years separately, so that it balances at any reporting date.

12.3 Year-end closing entry

Income and expense accounts are closed to retained earnings at the financial year-end date. Closing a year that has not ended is rejected; re-running the close posts only residual balances (e.g. postings made after the first close).

12.4 Conversion from a previous system

• The conversion date is the last day in the previous system. Open receivables and payables are carried over as individual items with their original document and due dates (for ageing and statements), at the outstanding amount, without VAT (already accounted for in the previous system).
• Each open item posts against 9999 on the conversion date (receivable: Dr 1100 / Cr 9999; payable: Dr 9999 / Cr 2100). The trial balance of all other accounts posts against 9999.
• Posting is permitted only when the opening trial balance balances and the receivables and payables controls in it agree to the open items; 9999 is then nil. After posting, the opening balances are locked and corrections are made by journal.

13. Group reporting

• A group is an explicit set of entities. An entity can only be added or removed by its own administrator, and group reports require access to every entity in the group.
• The group trial balance, statement of profit or loss and statement of financial position aggregate the separate ledgers by account code, with one column per entity, an eliminations column and the group total. Account codes used with different names in different entities are flagged.
• Accounts designated as inter-company with another group entity are eliminated. An account designated against an entity outside the group is not eliminated and is reported.
• Unmatched inter-company balances are disclosed as one line, "unreconciled inter-company difference", with a reconciliation per entity pair, so that the group totals still equal the sum of the entities.
• Current-year earnings in the group statement of financial position follow each entity's own financial year.
• This is an aggregation with inter-company eliminations; it is not a consolidation under IFRS 10 or Section 9 of IFRS for SMEs.

14. Reconciliation controls — books health review

A built-in reconciliation report verifies, at any time, that the ledger agrees with its sub-ledgers:

Exceptions are reported with the amount and, where possible, the source documents concerned. The treatments in this note are covered by an automated regression suite of more than 1 500 tests, including a full accounting cycle (conversion, sales, receipts, advances, write-offs, purchases, supplier notes) that must reconcile on every control.

15. Limitations

• Expected credit losses: no allowance for impairment of receivables is calculated; only specific write-offs.
• Foreign currency: open monetary items are not retranslated at the closing rate; the existing revaluation function does not yet produce a translation difference, because foreign-currency amounts are not held on the ledger. Customer advances, conversion balances and write-offs are ZAR only.
• PPE: no tax-allowance (s11(e)) register, impairment or revaluation model; a change in useful life or residual value recalculates the straight-line charge on cost over the revised life rather than re-spreading the remaining carrying amount over the remaining life.
• Payroll: net pay is credited to Bank on the payslip date (no salaries payable account); rounding convention open (section 9); public holidays not applied to EMP201 due dates.
• Group: aggregation with eliminations only (section 13).
• VAT: fields 5–11 and 16 not derived; no electronic submission; payments-basis vendors are not separately supported.
• Not yet available: provisional tax (IRP6), trust-specific reporting (IT3(t), beneficiary distributions), annual financial statements with notes, a statement of cash flows derived from the ledger, bank-specific payment file formats, live bank feeds.

16. References

• SARS, VAT 404 Guide for Vendors, Issue 15 (17 December 2024): para 5.2.1 (time of supply, deposits), 9.2 (irrecoverable debts), 9.5 (rounding differences).
• SARS, GEN-ELEC-04-G01 Guide to completing the VAT201 return, Revision 11, effective 12 May 2025 (Field 12 p.19; Fields 17 and 18 p.21).
• Value-Added Tax Act 89 of 1991, ss 9(1) and 22 (as summarised in VAT 404).
• SARS, Rates of Tax for Individuals and Medical Tax Credit Rates (updated 25 February 2026); SARS guidance on UIF and SDL.
• SARS, PAYE-GEN-01-G05 Guide for Employers in respect of the Employment Tax Incentive, Revision 17 (19 September 2025).
• SARS, Guide for Employers in respect of Employees' Tax (2027); Budget 2026 FAQ.
• SARS, Business Requirements Specification: PAYE Employer Reconciliation, V25.3.0 (2026 release).