Meaning of Accounting Part 1

Merchants are obliged to keep accounts. The accounting obligation is laid down and regulated in the Commercial Code (HGB). The obligation to keep books depends on the legal form. It also depends on whether a self-employed person or a company is considered a businessman. This criterion ultimately decides on the accounting obligation.

Definition of accounting obligation

Basically, all business people must systematically document their business transactions in accordance with Section 238 I of the German Commercial Code (HGB ) in order to be able to present the situation of their company to the outside world for themselves and, if necessary, for third parties (public).

Basics of accounting requirements

It is the duty of the merchants to create systematic documentation on the creation and processing of business transactions in the company and, if necessary, to publish it. A businessman must always keep the books in accordance with the principles of proper accounting and present all his business transactions and his financial position in them . Everything must be designed so clearly and comprehensibly that an expert third party can get an overview within a reasonable period of time. In addition, one must be able to understand the business transactions exactly.

The balance sheet provides an overview of the overall situation of a company. The accounting provides a detailed insight into the company’s activities and processes. Everyone who is considered a businessman according to the German Commercial Code (HGB) is obliged to keep accounts properly.

According to the German Accounting Law Modernization Act, size-dependent exceptions apply. There are also exceptions for certain professional groups. However, the obligation to keep accounts should not be confused with the obligation to record one’s expenses and income . Instead, it is about the way in which this flow of money is to be recorded.

When do I have to keep accounts?

The accounting obligation generally begins with the start of the commercial trade. In the case of a general partnership (OHG), the accounting obligation begins before the entry in the commercial register at the start of business. The accounting obligation ends with the expiry of the merchant status or the deletion from the commercial register .

Derivative accounting obligation

According to Acronymmonster, the derivative accounting obligation comes from tax law and is also called derived accounting obligation . It is mentioned in § 140 AO (Tax Code): “Anyone who has to keep books and records that are important for taxation according to laws other than tax laws, has the obligations that are incumbent on him under the other laws, also for taxation to meet. ”

What is the original accounting requirement?

The original accounting obligation is the obligation to regularly draw up financial statements based on the annual inventory . However, this obligation does not only apply to merchants, but also to all farmers and foresters according to § 141 AO .

Section 141 AO also lists the requirements for other traders who are subject to accounting requirements. To do this, they and the farmers and foresters must meet at least one of the following four requirements:

  • Sales including tax-free sales of more than 600,000 euros in the calendar year
  • Self-managed agricultural and forestry areas with an economic value (Section 46 of the Assessment Act ) of more than 25,000 euros
  • a profit from commercial operations of more than 60,000 euros in the financial year
  • a profit from agriculture and forestry of more than 60,000 euros per calendar year

Double-entry accounting

According to § 238 HGB and § 141 AO, merchants and traders are obliged to keep accounts under tax law and commercial law . A distinction is made between single and double accounting . The simple accounting (determination of income and expenses) is summarized at the end of the year (end of the calendar year) in the income surplus calculation (EÜR). Double-entry accounting is carried out using a chart of accounts and ends with the creation of the balance sheet for the calendar year.

Who is required to keep double-entry accounting?

Statutory income limits are stipulated for the double-entry accounting obligation . All freelancers and small businesses who are below this profit limit / turnover limit only have to do simple accounting and create an EÜR at the end of the year. You can use an EÜR template for this . The same applies to small businesses who, due to their low turnover, are not only exempt from VAT , but also from the double-entry accounting obligation. All those who are above the turnover limit, mainly large companies, AGs and GmbHs, have to do double-entry accounting.

When does the double entry requirement apply?

A new limit for the use of double entry accounting has been in force for all traders and merchants since 2016. Anyone who generates more than EUR 60,000 in profit per year or a turnover of more than EUR 600,000 per year is obliged to keep double bookings . In addition, a balance sheet must be drawn up. For all others, the EÜR applies, which has to be created using an official form since 2018.

Accounting 1