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Germany

Accounts

Updated 07/2012

Legal requirements

The legal basis for accounting is the Commercial Code (HGB).

Accounting rules

Single-entry bookkeeping

Single-entry bookkeeping, which only covers inventory costs, only enables the drawing up of a balance sheet; no profit and loss account is drawn up. This makes it insufficient for the preparation of annual accounts under German commercial law. Since the calculation of taxable profits is generally based on the commercial balance sheet, single-entry bookkeeping is also unsuitable under fiscal law.

If taxable profits are not determined through the balance sheet, the taxpayer may calculate his/her profits using the net income method. Here, income and expenditure are simply set against each other.

The Business assets (machinery, materials, etc.) are not included in the cash basis accounting, nor are the business's debts (loans, credits, etc.). Only the directly associated expenditure (e. g. depreciation, interest) is considered as operating expenses. Therefor the tax office form should be used for a turnover of more than EUR 17 500.

Double-entry bookkeeping

The German Commercial Code obliges all commercial businesses to practise double-entry bookkeeping, i.e. business transactions must be recorded twice, based on origin and use, on the debit and credit sides of the inventory and profit and loss accounts.

Corporations (e. g. limited liability companies and stock companies) and commercial partnerships (general and limited partnerships) must always practise double-entry bookkeeping.

Sole traders must use double-entry bookkeeping in two consecutive years for a certain turnover (over EUR 500 000 per year), or annual surplus (over EUR 50 000 per year).

Bookkeeping

The accounts must be kept in such a way that they can provide an overview of the underlying transactions and of the state of the bussiness. It must be possible to track the transactions from their origin through subsequent processing. Whether and to what extent accounts need to be kept and a balance sheet as well as profit and loss account need to be drawn mainly depends on the legal structure of the business and the following factors:

  • turnover;
  • profits;
  • business assets and liabilities;
  • average annual number of employees.

Businesses have to retain their journals, such as accounting vouchers, account books and inventory lists, for up to ten years.

Bookkeeping must be transparent, systematic and completed on time.

The accounts and annual financial statements of large and medium-sized corporations must be checked once a year by an auditor.

Inventory

Generally at the beginning of their activities, companies are obliged to use double-entry bookkeeping to enter their assets and liabilities in a register (inventory) and run a stock check at the end of each year.

 

Administrative procedures

Bookkeeping

The use of single-entry bookkeeping entails keeping a cash journal covering income and expenditure, which should also include details of incoming and outgoing merchandise.

The details to be recorded include the name and address of the supplier or customer and the usual commercial description of the goods, including their price.

The double-entry bookkeeping is slightly more complicated: every business transaction must be entered in at least two accounts, depending on its origin and use. Each of these accounts has a debit and a credit side.

For tax purposes, cash basis accounting needs to be done on an official form of the fiscal authorities; informal cash basis accounting will be enough for the bookkeeping, e.g. an Excel table or similar. Small companies (less than EUR 17 500 gross turnover per year) do not need to use the form; an informal declaration is enough.

Companies or sole traders who are required to do double-entry bookkeeping must draw up and submit annual accounts to the local tax office by the end of every financial year. If no separate tax account is drawn up, the commercial valuations must be adjusted to reflect the taxation rules by way of additions or remarks. As a minimum, the annual accounts must include a profit and loss account and a balance sheet.

Stock check

For the purpose of preparing the balance sheet, every company must do an inventory by a given date (end of the financial year, e.g. 31 December).

Annual accounts

Balance sheet and profit and loss statement make up the annual financial statements. Corporations must add appendix giving additional details; large and medium-sized corporations also have to produce a management report. Small companies must draw up their annual accounts within six months, others within three months of the end of the financial year.

The balance sheet has to be produced in the form of account. The layout and breakdown of the balance sheet and the profit and loss account are laid down by law.

Storage and submission of documents

Commercial account books, inventory lists, annual financial statements and posting vouchers must be retained for ten years, other commercial papers for just six years. The documents to be retained may be archived to electronic media, but the business must be able to provide them in a readable form at any time.

Auditing, disclosure and publication

Large and medium-sized companies have to have their annual accounts, including bookkeeping, checked by an annual auditor. The auditor checks that the statutory rules have been complied with and that there are no irregularities in presentation of the company’s assets, financial or earnings position.

Corporations and the equivalent commercial partnerships without a natural person as a personally liable shareholder (e.g. GmbH & Co KG) must submit their annual accounts no later than twelve months after the end of the financial year electronically to the Federal Gazette (Bundesanzeiger) and have them published.

Resources

Alongside the online academy run by the Chambers of Industry and Commerce, courses and further training in bookkeeping are available from many other sources.

Help & advice

Help & advice

E-mail a business organisation near you

The EU runs a network (Enterprise Europe Network) of local business organisations in most European countries that may be able to help you.

Choose your country and town and enter your enquiry below.

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