Accounts - Germany

Updated 10/2010

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Legal requirements

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

• Commercial Code

Accounting rules

Single-entry bookkeeping

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

• Federal Ministry of Economics (BMWi): Single-entry bookkeeping

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

The stock of business assets (machinery, materials, etc) is not included in the net income method, nor are the business’s debts/liabilities (loans, credits, etc.). Only the directly associated expenditure (e.g. depreciation, interest) is considered as operating expenses. The tax office form should be used for this above a turnover threshold of EUR 17 500.

• Income tax forms
• Single-entry bookkeeping

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 P&L accounts.

• Commercial Code

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

Sole traders must also maintain double-entry accounts above a certain turnover threshold (over EUR 500 000 per year), or annual surplus (over EUR 50 000 per year).

• Double-entry bookkeeping

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 business.  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 and a profit and loss account drawn up 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 accounts for up to ten years, including posting vouchers, commercial account books and inventory lists.

Bookkeeping must be transparent, systematic and completed on time.

• Generally accepted accounting principles

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

Inventory

Companies required to keep double-entry accounts are obliged at the beginning of their activities to enter their assets and liabilities in a register (inventory) and run a stock check at the end of each financial year.

• Balance sheet / Inventory

Administrative procedures

Bookkeeping

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.

• Online tool: Cash journal            

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.

• Double-entry bookkeeping

For tax purposes, net income accounts must be submitted via a tax office form ; for bookkeeping on its own, informal net income accounts are enough – an Excel spreadsheet, for example. Micro-enterprises (less than EUR 17 500 gross turnover per year) need not use the form; an informal declaration is enough.

• Single-entry bookkeeping
• Taxes: Calculating profits by the net income method

Fully qualified merchants or non-merchants who are required to keep double-entry books must draw up and submit annual accounts to the local tax office at 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.

• Profit and loss account

Inventory

For the purposes of preparing the balance sheet, every business must draw up an inventory by a given date (end of the financial year, e.g. 31 December).

• Balance sheet / Inventory

Annual accounts

The balance sheet and the profit and loss account make up the annual financial statements. Corporations must supplement this with notes 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.

• Balance sheet

The balance sheet must be drawn up in the form of accounts. The layout and breakdown of the balance sheet and the profit and loss account are laid down by law.

• Commercial Code (Sections 266, 275 HGB)

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.

• Commercial Code (Sections 257 to 261 HGB)

Auditing, disclosure and publication

Large and medium-sized corporations must have their financial statements, including the underlying accounts, reviewed by an 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.

• Commercial Code (Sections 316 to 324a HGB)

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 electronically for publication in the electronic Federal Gazette (Bundesanzeiger) and have them published no later than twelve months after the end of the financial year.

• Commercial Code (Sections 325 to 329 HGB)
• Electronic Federal Gazette

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.

• Online academy of the Chambers of Industry and Commerce
• Adult evening classes
• Seminars for people starting up a business

Check also the legislation on this topic in:

• European Union
• Austriadeen
• Belgiumenfrnl
• Bulgariabgen
• Cypruselen
• Czech Republiccsen
• Denmarkdaen
• Estoniaenet
• Finlandenfi
• Franceenfr
• Germanydeen
• Greeceelen
• Hungaryenhu
• Irelanden
• Italyenit
• Latviaenlv
• Lithuaniaenlt
• Luxembourgenfr
• Maltaen
• Netherlandsennl
• Norwayenno
• Polandenpl
• Portugalenpt
• Romaniaenro
• Slovakiaensk
• Sloveniaensl
• Spainenes
• Swedenensv
• United Kingdomen