SSoT (Bookkeeping)

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What is the Single Source of Truth (SSoT) in a bookkeeping? This question comes up quite frequently, including now in 2024.07 concerning using a VAT ledger: Is the general ledger leading, or the VAT ledger?

(1) Original documents are SSoT

In the end, the original documents the information of which is contained in a bookkeeping, are the SSoT. E.g.:

Single Sources of Truth (SSoT) concerning bookkeeping
Entity SSoT
Opening balance Closing balance last year, according to tax return Belastingdienst
Transactions
  • Official documents, including invoices & paper bills
  • If somehow a document is missing, than have an own replacement document. Often, missing documents can be reconstructed e.g., from bank statements.
VAT submission
  • VAT submission forms as send to the Belastingdienst
  • Additional files, because the VAT submission forms are not sufficiently detailed and in some cases, only contain summaries. These additional files can be text files - Don't need to be PDF files.

(2) General Ledger is SSoT

The "Single Source of Truth" (SSoT) within a bookkeeping is generally considered to be the general ledger. The general ledger is the primary, comprehensive and final record of all financial transactions within an organization, including those related to VAT, and it forms the basis for the company's financial statements.

  • Comprehensive Record: The general ledger contains summarized and detailed records of all financial transactions across all accounts, including assets, liabilities, equity, revenues, and expenses
  • Financial Statements: It is used to generate the company's financial statements, such as the balance sheet, income statement, and cash flow statement
  • Reconciliation: Other specialized ledgers and records, including the VAT ledger, should be reconciled with the general ledger to ensure consistency and accuracy.

Role of the VAT Ledger

  • Supplementary Detail: The VAT ledger provides detailed tracking and management of VAT transactions, which are then summarized and posted to the VAT accounts in the general ledger
  • Compliance and Reporting: It helps in preparing accurate VAT returns and ensuring compliance with tax regulations, but it ultimately feeds into the general ledger for a complete financial picture.

Integration and Reconciliation

  • Recording: VAT transactions are recorded in both the VAT ledger (for detailed tracking) and the general ledger (for overall financial reporting)
  • Reconciliation: Periodically, the VAT ledger should be reconciled with the general ledger to ensure that all VAT amounts match and that there are no discrepancies.

Example Workflow

  1. Record Transactions: Record all sales and purchase transactions, including VAT, in both the sales/purchase journals and the VAT ledger
  2. Post to General Ledger: Summarize and post these transactions to the relevant accounts in the general ledger
  3. Maintain VAT Ledger: Use the VAT ledger to track detailed VAT information separately
  4. Reconcile: Regularly reconcile the VAT ledger with the VAT accounts in the general ledger
  5. Prepare Reports: Use the general ledger as the SSoT to prepare financial statements and VAT returns.