Spanish General Accounting Plan: Principles and Taxation

Spanish General Accounting Plan (PGC)

The Spanish General Accounting Plan (PGC) establishes the legal framework for technical accounting standardization. It aims to ensure that fundamental economic and financial information of companies is reliable and comparable.

Conceptual Framework

The conceptual framework is a set of fundamentals, principles, and basic concepts underlying the entire plan. It serves as an instrument that provides unity and consistency to the whole standard. Annual accounts must provide clear information.

Accounting Principles

• Going Concern: Financial statements are prepared assuming that the company will continue to operate in the foreseeable future.
• Accrual Basis: This involves the accounting records of business transactions and other events, reflecting the real flow of resources and not just the monetary system.
• Consistency: This establishes the obligation to maintain a standard over time in the company regarding the allowed alternatives.
• Prudence: This involves the inclusion of a reasonable degree of caution in estimations made under conditions of uncertainty.
• No Offsetting: This prohibits offsetting asset items against liability items and income items against expense items. The elements of the annual accounts must be assessed separately.
• Materiality: This allows for the non-strict application of an accounting principle or criterion when its impact is not significant.

Account Groups

• Group 1: Basic Financing (Capital)
• Group 2: Non-Current Assets (Construction)
• Group 3: Inventories (Merchandise)
• Group 4: Creditors and Debtors (Customers, Suppliers)
• Group 5: Financial Accounts (Cash)
• Group 6: Purchases and Expenses
• Group 7: Sales and Income (Sales, Market)

Auditing

Auditing consists of examining whether the annotations embodied in the accounting records adequately describe the facts that have occurred. The objective is to draft a report on the reliability of the financial resources analyzed.

Tax Legislation

Tax legislation is fundamentally formed by the General Tax Law, which establishes the general framework and is developed to classify the different standards in taxes. Taxes include fees, contributions, and taxes.

• Fees: Cash benefits made to a public entity for an activity that provides a profit to the user.
• Contributions: Money received by a public body from an individual for a specific reason, where the benefit is collective.
• Taxes: Payments required by public administrations without direct compensation for the taxpayer. Taxes can be:
  • Progressive: Increases as the tax base increases.
  • Regressive: Decreases as the tax base increases.
  • Proportional: Always the same proportion.

Income Tax

Income tax is a progressive and personal tax that taxes the income of individuals according to their personal circumstances.

Corporate Income Tax (IS)

Corporate income tax is a direct tax that taxes the income of companies and other legal entities.