Accounts in Germany

Bookkeeping

The German accounting rules foresee single-entry bookkeeping and double-entry bookkeeping.

The main difference between single- and double-entry bookkeeping is that single-entry bookkeeping involves a balance sheet only, while double-entry bookkeeping means that business transactions must be recorded twice, on the debit and credit of the asset and P&L accounts. Because the calculation of taxable profits is based on the commercial balance sheet, single-entry bookkeeping is also unsuited to meeting the requirements of the German tax law.

For this reason taxpayers may calculate profits by the net income method, which does not include business assets (e.g. machinery) and debts (e.g. loans). According to the German Commercial Code, commercial businesses (e.g. corporations) must practise double-entry bookkeeping. Sole traders must run single-entry bookkeeping or double-entry bookkeeping, depending on the turnover thresold (€ 500,000) or on their annual profit (€50,000). Businesses obliged to run double-entry accounts need to keep an inventory as well, a register into which they enter their assets and liabilities (from the beginning of their activities onwards).

In General bookkeeping must me transparent, systematic and completed. The accounts must be kept in such a way to provide an overview of the state of business and the underlying transactions. The structure of the business plays a very important role in determinating how the accounts must be kept in practice, togheter with other factors as profits, turnover, assets, liabilities and number of employees.

The German law foresees that business have to retain their account for up to ten years (long-term archiving).

Annual accounts

The annual financial statements are made up from the balance sheet and the profit and loss account. Depending on the size of the business, these documents need do be supplemented with notes (corporations) and a management report (larger corporations).