Meaning of Accounting


As an entrepreneur, you have to draw up your balance sheet at the end of the year. This is a MUST for all merchants who are obliged to keep double bookkeeping under the Commercial Code (§ 238 HGB / § 242 HGB). Because you have to balance your accounts on the debit and credit side. But what exactly do you have to do for it? This article will tell you everything you need to know about accounting.

What is accounting?

The accounting is the process with which you create your balance sheet in compliance with the statutory provisions of the Commercial Code (§ 242, §§ 246 ff HGB) and thus the necessary annual balance sheet at the end of the financial year . The process that leads to this annual balance sheet is called accounting.

You have to list all of your assets and capital that belong to the relevant fiscal year. Everything that you bought or sold again. This listing is listed separately according to a specific chart of accounts according to different accounts and in different books. We come to this content and the exact structure in the next section.

Content and structure of the balance sheet

The balance sheet is divided into debit and credit – almost like your bank statement. In the balance sheet, however, these sides are called assets and liabilities . On these pages you can list exactly what you buy and sell throughout the year. So a new company car or office supplies and raw materials. But of course you also sell your finished products, maybe also old machines from your inventory.

Because of the two sides, the whole thing is called “double entry” and the two sides must be balanced at the end of the year. Incidentally, this compensation is also called accounting, not just the preparation of the annual balance sheet.

In the opening balance sheet, you have to enter all the necessary details, i.e. your current status, at the beginning of the financial year. Electronic bookkeeping is urgently recommended for all of this bookkeeping and accounting. Because something like this can quickly become very extensive and confusing. What has to be on the balance sheet is stipulated in Section 247 of the German Commercial Code (HGB). What may not be included (accounting ban) can be found in Section 248 of the German Commercial Code (HGB).


You post your fixed assets and your current assets on the assets side. For fixed assets include all property and financial investments, so your building, your fleet, your machines. You can also book patents and licenses or long-term securities here – if available.

For working capital counts the cash in your cash, your bank accounts, your raw materials and supplies or your inventory of finished products, but also the demands of your customers.


On the liabilities side, on the other hand, you post your equity (such as reserves or surpluses and deficits) and debt (provisions and liabilities). Some liabilities are to be noted separately under the balance sheet (§ 251 HGB).

So basically all of your debts or, in other words, the money that you use to finance your assets. Incidentally, this is also where the tax is written.

In addition, there are deferred items on the assets and liabilities side (§ 250 HGB). These are all items in which your income and expenses (including income and expenses) fall into two different financial years and are posted separately.

With a balance sheet template, you can simply enter the numbers and do not have to create a new document every time. The template lists exactly what you have to enter, which saves you a lot of time.

Accounting regulations of the HGB

The structure of the balance sheet is precisely defined in Section 266 of the German Commercial Code (HGB). There it is listed exactly which positions are to be booked where.

In addition, you will also find all other regulations on how to handle the balance sheet and the principles for accounting in the Commercial Code. This includes, for example, the following principles:

  • Completeness and offsetting prohibition according to § 246 HGB
  • Clarity, clarity, list according to the principles of proper bookkeeping and in good time according to § 243 HGB
  • Listed in German and in euros in accordance with Section 244 of the German Commercial Code (HGB)
  • Signing obligation according to § 245 HGB
  • General valuation principles according to Section 252 of the German Commercial Code (HGB) such as the going concern principle, the principle of continuity of presentation, balance sheet identity or careful valuation and accruals
  • Principle of formal balance sheet continuity
  • Principle of materiality (Sections 285, 265, 268, 267 HGB)
  • The annual financial statements of the corporation must give a true and fair view of the asset, financial and earnings position of the corporation in accordance with the principles of proper bookkeeping (Section 264 (2) HGB)

When do I have to be accounted for and why?

As a businessman, you are obliged to keep books and balance sheets under the German Commercial Code (HGB).

These numbers are important for you internally because you always have to have an overview of your finances in order to plan your expenses and project planning sensibly. Externally, they are also important, especially for your banks or other creditors. Your suppliers also want to be on the safe side. In short, the balance sheet and the disclosure requirement are also intended to protect all third parties with whom you do business.


As a self-employed person, you have the option of doing a simple income-surplus calculation . An exception to the balance sheet results for you from the value limits, which are mentioned in § 241 a HGB. According to this, “sole traders who have no more than EUR 600,000 in sales and EUR 60,000 in annual net income on the closing dates of two consecutive financial years” are exempt from bookkeeping and the creation of an inventory.

Which accounting guidelines do I have to observe?

In order for you to achieve correct accounting in your company, you have to observe various legal regulations and principles. In addition, there are a number of internal work or procedural instructions that are intended to ensure that you or the people entrusted with the accounting process everything correctly. An accounting manual is usually used as a basis for this.

Such a manual includes all uniform guidelines for the company that relate to accounting and company valuation. So also the previously listed legal requirements from the HGB or those that result from the IFRS.

If you are unsure how to create such guidelines, you can seek external help from special providers.

Accounting and annual accounts

You have to take good care of your books and accounts throughout the year so that you have all the necessary data for the annual financial statements at the end of the year or at the end of the financial year.

These annual financial statements, which usually take place on the last business day of the year or after, then consist of your balance sheet and your GUV invoice .

For this profit and loss account, you also have to pay attention to clear structures. However, this is not a problem with electronic accounting programs, as they of course comply with the requirements.

In the GUV, too, you compare your income and expenses and you have to include the profit or loss that results in the balance sheet. The GUV account is closed via the equity account, which then appears as an account in the balance sheet at the end.