Accounting in El Salvador: the books the law requires and who may keep them

A bakery in Santa Ana

Rosa Hernández opened her bakery in Santa Ana with one oven, two tables and a quesadilla recipe her grandmother never taught anyone else. In the first year she kept the accounts herself, in a notebook, at the end of each day. The law allowed it.

Three years later Rosa has a second oven, a delivery motorcycle, a month's stock of flour and customers who buy on credit. One day, sorting papers for the bank, she adds up what the business owns and realises it is no longer the small bakery it was at the start. Nor is it in the eyes of the law.

What the Commercial Code requires

El Salvador's Commercial Code requires every trader to keep organised accounts under a generally accepted system. Its main rules fit in a list:

• Mandatory records: the financial statements, the journal book and the general ledger, plus whatever else the business's accounting needs (article 435).
• Language and currency: in Spanish, and in colones or United States dollars; in practice, dollars. The accounts are kept inside the country (article 436).
• Order: transactions are recorded every day, clearly and in chronological order, and an error is corrected with an entry, not by erasing (article 439).
• Retention: records are kept for ten years (article 451).

The accounting standards are set by the Board for the Oversight of the Public Accounting and Auditing Profession (CVPCPA), which adopted the IFRS for SMEs as the framework for most companies that are not listed on a stock exchange.

Who may keep the books

Here Rosa's story changes. Article 437 sorts traders by the size of the business:

The mandatory records are kept in bound books or on loose sheets, every page numbered, and they are authorised by the certified public accountant the trader appoints; in a company, by the external auditor (article 438).

The VAT books

Once Rosa registers for VAT, which is 13% in El Salvador, books appear that the Commercial Code does not mention and the Tax Code does: the purchases book, the book of sales to registered taxpayers and the book of sales to final consumers. The monthly VAT return is prepared from them. They are subsidiary books: they do not replace the journal or the ledger, and they are fed by the same documents.

Electronic invoicing

The Ministry of Finance has spent several years moving taxpayers to electronic tax documents (DTE). The obligation arrives in stages: the Ministry notifies each taxpayer of the date from which it must issue them, and the rest may join voluntarily. For the accounts, the paper changes, not the rule: each DTE issued or received is the document behind an entry.

A month at the bakery, in entries

Here are three of Rosa's transactions with VAT shown separately. A sale to final consumers of 1,130 dollars includes 130 of tax; a flour purchase of 452 includes 52 of input tax.

At the end of the month the VAT payable is the difference between output and input tax: 130 less 52, 78 dollars. Every entry balances: what goes into the debits equals what goes into the credits.

What Rosa did

Rosa hired a certified public accountant, who authorised her records and asked for one thing only: that every transaction be recorded the same day, with its document. She still records the sales and the purchases; he reviews every month, prepares the returns and signs the financial statements. Rosa no longer hands him a box of receipts at the end of the year. She hands him books that balance.

Where Aconta Online comes in

Aconta Online keeps each company's journal book, general ledger, trial balance, income statement and balance sheet in dollars, by double entry. It refuses an entry that does not balance and never edits a posted one: a mistake is corrected with a reversal, as article 439 requires. You can add to the chart of accounts the ones your accountant uses, and an office keeps several companies from a single account. It does not keep the VAT books, issue DTEs or file returns: those stay with your accountant and the Ministry's systems. The first company is free, no card required.