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International Accounting Cycle Best Practices

By October 5, 2016March 24th, 2023No Comments
International Accounting Cycle Best Practices

During global growth, companies need to not only maneuver labor requirements and culture challenges, but its leaders also need to understand how to manage an international accounting cycle. As a provider of international payroll, our team helps companies manage overseas employees salaries on time while meeting all of the nuances in each country. Payroll is a large part of a business’ accounting cycle.

A typical accounting cycle starts by recording transactions, including invoices, sales, or salary payments, with journal entries. These recordings are calculated on monthly and quarterly periods within the company’s fiscal year. Overall, the accounting cycle provides information about a company’s historical events and is subject to audits to ensure that all information is reported correctly and accurately represents a company’s cash flow.

Steps to an International Accounting Cycle

At the beginning of the cycle, your transactions occur. This is step one. Transactions include a sale, payment for a service, return of a product, payment to a contractor, etc. After the transaction occurs, it’s recorded as a journal entry by your team’s bookkeeper. This journal is typically organized in chronological order. Companies can have multiple “books” based on divisions, product segments, or locations, i.e., your international office.

Next, the transactions are posted to the appropriate account and appear in the company’s general ledger. This is a location where you can see the summary of all your accounts. At the end of the period, which is based on your business’ preferences, a trial balance is performed to ensure the credits and debits balance. Leave this step to the professionals. If your bookkeeper finds errors, they will adjust the errors using a worksheet.

Once all adjustments are made, your accountant will prepare your company’s financial statements, which includes your income statement, balance sheet, and statement of cash flows. Then, you’ll close the books for the revenue and expenses accounts and start the process with zero balances.

International Accounting Regulations

In the US, we use the Generally Accepted Accounting Principles (GAAP) as the standards for accounting rules. These apply to reporting requirements how a company’s financial statements are compiled.

When you’re operating overseas, most countries outside the US use the International Financial Reporting Standards (IFRS). IFRS focuses more on principles than rules and takes the economics of a transaction into consideration.

There are many differences between the two standards, primarily surrounding inventory reporting. For companies seeking international expansion, the primary difference for you will be the treatment of intangible assets. Under GAAP, acquired intangible assets, including R&D, intellectual property, and brand recognition, are recognized at fair value, or what the market is willing to pay. IFRS only recognizes intangibles if the asset has a future economic value and can be measured.

International Payroll Accounting

International payroll is complicated due to the regulations set forth by each, individual country. Many businesses that expand overseas outsource international payroll to a third-party provider. This helps mitigate risk by putting compliance and tax requirements in the hands of a trusted expert.

For example, some countries charge VAT (value-added tax) for services rendered in-country and are typically applied to the entire invoice each month. In these cases, this is a required tax and cannot be avoided.

Velocity Global’s global payroll service helps you pay international employees properly and on-time. Without the burden of managing withholding requirements, your team can focus on strategy and further growth. Plus, your employees will stay happy knowing they can expect a consistent paycheck each month.

Get in touch with us to learn more about this service!