Understanding Accounting Law and its Impact on Businesses
Accounting law comprises a set of rules and documentation governing the activity of entrepreneurs and their results, expressed in monetary terms. It encompasses accounting, bookkeeping techniques, the meaning of entries or book entries, and the documents (traditionally books) in which these are manifested.
Such standards, as structural elements of a company and the status of the employer, are of a heterogeneous nature, belonging to different bodies of law. Therefore, we discuss their legal nature: some authors lean towards a private law character, while others stress the impact on content, as an academic discipline, of aspects of public law. This is exemplified in its relations with tax law, administration (especially in audit management), and criminal law.
Function
A) Legal instruments are addressed, as is known, to the compliance with economic and social functions and the production of a particular result. For our purposes, function means an activity linked to the achievement of ends and the satisfaction of interests that are not unique to the individual performing the activity. This includes the cause and outcome within the term “function”.
Staff Costs: Components and Accounting
Staff costs can be distinguished into two basic components:
Wages and Salaries: The remuneration paid to the employee. However, the company does not deliver this entire amount to the worker, as it retains a portion for two concepts:
Social Security (Employee’s Contribution): Every employee is required to contribute to Social Security. Instead of the employee paying it directly, the company withholds this amount and handles its submission to Social Security.
Withholding Income Tax of Individuals: Companies are required to retain a portion of their employees’ salaries for submission to the Treasury as an advance on the tax each employee will pay.
Contribution to Social Security (Employer’s Responsibility): The company is also obliged to contribute to Social Security.
Wages and Salaries: This is an expense account that is recorded at year-end against income.
Banks: This includes the amount paid to the employee.
Creditor Social Security: This records the deduction made from the employee for their contribution to Social Security.
Treasury Receivable: This records the employee deduction in respect of income tax.
When the company delivers the withheld amounts to Social Security and the Treasury:
Accounting Events: Definition and Classification
Accounting events are the process of identifying and formally registering or incorporating into the accounts those economic events that change the company’s accounts. An accounting event may be, for example, a sale, payment, purchase, return, etc.
Economic events should be properly classified by type to register them in the appropriate accounts. This classification should be done under a plan previously developed by the accounting economic entity.
Developing basic standards and technical standards governs the accounting cycle. The accounting cycle is the process to be followed to ensure that all economic events are recognized and successfully transmitted to the users of information (Article 46, Decree 2649 of 1993).
Types of Accounting Events
Accounting events can be defined as those events that affect or may affect the assets of the company. According to the changes occurring in assets, liabilities, net worth, or results, we can classify accounting events as:
- Permutations: These are events that can alter assets, liabilities, or net worth but do not affect the results. For example, buying a car in cash or depositing cash in the bank. One asset increases while another decreases.
- Modified: These are events that alter the results, either increasing or decreasing assets or liabilities. For example, payment of cash compensation or payment of interest on a checking account.
- Mixed: These are events that are both exchangeable and modified. For example, the cash sale of a used car for a price different from its cost.