Understanding accounting: the annual financial statements

The annual financial statements of a company provide an overall view of all profits and losses of the past financial year. The instrument of operational accounting provides information about the financial status of a company.

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What is included in the annual financial statements

For smaller companies, provided they are not subject to the obligation to keep accounts, the following applies Revenue surplus calculation (EÜR) is sufficient as an annual financial statement.

For example, if the company belongs to the size category of corporations, it is necessary to have at least one balance sheet and a Profit and Loss Account to create. This includes

Partnerships (GbR, OHG, KG)
Corporations (AG, GmbH, UG)
Corporation & Co. (AG & Co. KG, GmbH & Co. KG, UG & Co. KG )

Depending on the type and size of the company, an annex and a management report may also be required.

Function of the annual financial statements

Annual financial statements are intended to provide information on the one hand and to provide the basis for payments on the other. The latter can include taxes, but also investments and dividends. Strategies and consequences for the future can be derived from the information contained in the financial statements.

The duty to conclude

The basic obligation to prepare annual financial statements, as far as Germany is concerned, is regulated in the German Commercial Code. Other laws also apply. These include the Publicity Act or the Income Tax Act. There are also different regulations that affect certain legal forms and regulations.

International requirements

Companies that international companies operating in the USA may have to fulfil other and/or additional requirements in addition to the German annual financial statements. For example, companies that also operate in the USA and may be listed on the stock exchange must prepare financial statements in accordance with US-GAAP ( United States Generally Accepted Accounting Principles ) present.
If group structures exist, annual financial statements are prepared in accordance with IFRS (International Financial Reporting Standards) necessary.

How do I prepare my annual accounts?

Before preparing the annual financial statement, one has to prepare a number of things:

Necessary documents

Contractual documents such as excerpts from the commercial register, shareholder, leasing, rental and tenancy agreements, loan agreements and insurance policies, etc. are important.
Also documents such as copies of invoices, receipts (donations?) etc.

inventory

In the inventory the inventory is determined. This includes all of the company's debts and assets.

Complete accounting

In accordance with the principle of "no posting without supporting documents", all postings and corresponding supporting documents must be available. This also includes depreciation in order to show the depreciation of assets.

Open receivables

Receivables that are still outstanding are measured with regard to the risk of default and recognised as specific bad debt allowances.

Reserves

Reserves (statutory and voluntary) must be recognised.

This is how an annual financial statement is composed

The ongoing bookkeeping of a company provides the basis for the annual financial statements. This is a summary of the bookkeeping on an annual basis, including the inventory.