Correspondence Accounting – The Russian Way of Debits and Credits

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Have you ever heard of correspondence accounting?

If you’re not an accountant, or financial systems consultant, stop here. And if you’re an accountant and you’ve never had to debit or credit your accounts in Russia or the Russian-influenced world then you won’t need to know about this either.

Correspondence accounting is the Russian way of accounting, and it’s the bane of ‘Western’ financial accounting systems and of companies like mine, since we struggle to make the systems we sell work in Russia. My company, LLP Group, works with SunSystems, a British-born financial system that works more easily than most systems almost anywhere in the world  Indeed, we’ve implemented SunSystems for international companies in the USA, South America, Asia, Africa and Europe, ensuring a consistent view of finance even if local rules differ markedly.

But Russia is more difficult (any surprise?), and I write this in the hope that someone can tell me WHY!

Most accounting systems have a chart of accounts that lets you debit and credit to any series of accounts as long as you end up with a balance of zero. So you might do this for a sales invoice:

DEBTOR          1,000   D

SALES              800 C

TAX                   200 C

You can have any accounts in your journal, and any number of them (two credits and one debit in this case) as long as the final journal balance is zero.

But in Russian correspondence accounting each debit must be matched by a credit, and the two accounts involved must ‘correspond’. Indeed, the state issues a list of accounts that are permitted to ‘oppose’ each other. A Russian journal would look like this:

DEBTOR             800 D                    SALES                 800 C

DEBTOR             200 D                    TAX                      200 C

Each line, debiting a single account and crediting a single account must balance.

Most financial systems can imitate this style of accounting by imposing constraints on the way traditional journals are structured, but the real difficulty arises when you try to construct your statutory reports, since these rely on the corresponding account being known for every debit or credit. There’s even a kind of cross-reference report, a vast table, showing the values that have been posted between corresponding accounts. Statutory auditors, when not soliciting bribes, need only glance at this table to determine if the rules have been broken, and if fines are therefore due.

auditors

A small team of Russian auditors

All this is possible in ‘Western’ financial systems and in our company we’ve worked out a method that makes it possible. But it means that implementation time is longer and more expensive.

What is it all for? Who benefits? What possible management benefit comes from all of this? What statutory benefit?

Can someone tell me?!

And then there are ‘negative’ credits and debits!

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5 thoughts on “Correspondence Accounting – The Russian Way of Debits and Credits

  1. I was told I had to book in that way in Czechia 20 years ago. It is also called accounting “correspondance” (účetní souvztažnost). There is a special law stating which accounts can be linked with which in debit/credit. For example, it was forbidden to account for (say) work-in-progress with any other account than year-end closing account. I’m sure it still is…

    The nicety of the law is that although it is compulsory to account absurdly according to the law, there is no fine for accounting the way you need/want. The law fell rapidly into oblivion (it is still valid and one can buy a nice book of Kafkaesque accounting literature called “Sbírka souvztažností k účtům směrné účtové osnovy se vzorovou účtovou osnovou s opravami pro rok 2015”). The only fines are for tax evasion and improper financial disclosure (financial reporting). The way on how you set-up you tax report and your financial reportings are not subject to fines.

    LLP could advise its Russian clients to do the same thing as it advised its Czech clients (but had no idea it did): forget Kafka or Gogol, book what you need to book the way you need.

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    • I, too, remember those days. In Romania auditors still sometimes expect to see a ‘cross-reference’ report but there are no serious sanctions if you can’t produce it.

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  2. Another piece of accounting madness – Adam Bager

  3. SunSystems Implementations – Short is Beautiful – Adam Bager

  4. The Illusion of Remote Control – Adam Bager

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