Every business must prepare a Jahresabschluss at the end of each financial year and a comparison of expenses and income for that year. The Jahresabschluss is similar to an annual financial statement but is more accurately described as annual accounts as it differs in some ways from a typical annual financial statement.
Keep reading and get the know-how you need to prepare your business’s Jahresabschluss.
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The Jahresabschluss (which when literally translated is ‘year conclusion’ or ‘year close’ but roughly means annual accounts in English) is part of the commercial accounting of a company and is mandatory for every businessperson. ‘Accounting’ is the term used to describe the documentation of operational events – in a sense, it forms the cover term for all balance sheets. With the Jahresabschluss, accounting and inventory are combined and thus show which profits and losses a company has generated over the course of a year.
The comparison of expenses and income is referred to as the profit and loss account – in German, this is the Gewinn- und Verlustrechnung (GuV) – and, again the name says it all, shows all profits and losses of the company during the past financial year. Together, the balance sheet and the profit and loss account form the annual financial statements.
An opening balance sheet (Eröffnungsbilanz) must be drawn up at the beginning of the commercial trade. This opening balance should already comply with the rules applicable to annual financial statements. How to prepare the opening balance sheet in detail is explained in the article 5 Tips for preparing the opening balance sheet (the article is in German).
Why prepare a Jahresabschluss?
The Jahresabschluss (annual accounts) reflects the economic situation of the company and thus provide an overview of the financial situation of a company. The balance sheet (Bilanz) provides information on where the company’s funds come from and how much the company is in debt. The profit and loss account (Gewinn- und Verlustrechnung) then discloses how much money is left over at the end of the financial year. There are two reasons for preparing a Jahresabschluss.
First, it is an annual financial statement (a collection of accounts) that serves an informational function for all business partners and creditors. The result of these annual accounts, for example, determines the distribution of dividends to shareholders. Secondly, the annual accounts have a payment assessment function which forms the basis for the taxation of the company.
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There are clear rules in the German Commercial Code regarding the accounting obligation, which also grants small businesses or freelancers simplifications in bookkeeping.
- According to the Commercial Code, all merchants must prepare a Jahresabschluss. These include corporations and partnerships. Corporations include, for example, the entrepreneurial limited liability company (UG) and limited liability company (GmbH) legal forms.
- An exception applies to sole traders (Einzelkaufleute) who, on the balance sheet dates of two consecutive financial years, do not have more than € 600,000 in sales revenue and € 60,000 in net income for the year.
- Freelancers and small businesses only need to prepare a surplus revenue account (Einnahmen-Überschuss-Rechnung (EÜR) in German) for their annual accounting.
How must a Jahresabschluss be filed?
Since 2013, companies requiring a balance sheet have to submit the Jahresabschluss, including all components, electronically via the ELSTER portal. The digital Jahresabschluss must also contain the so-called e-balance sheet (E-Bilanz).
Why does the obligation to publish the Jahresabschluss apply?
According to section 325 of the German Commercial Code (Handelsgesetzbuch – HGB), corporations must publish their annual financial statements in the Commercial Register (Handelsregister) and the Federal Gazette (Bundesanzeiger). The disclosure must be made by a legal representative of the corporation in the German language. If a corporation fails to comply with this obligation in good time, the Federal Office of Justice may get involved.
How are companies classified by size?
Before entrepreneurs grapple with the content of the Jahresabschluss, the size classes according to § 267 of the German Commercial Code should first be explained, as some additions and extensions to the Jahresabschluss only apply to medium-sized and large companies.
- Small corporations generate a maximum of € 12,000,000 in sales revenue, have a maximum balance sheet total of € 6,000,000 and do not have more than 50 employees.
- Medium-sized corporations meet the criteria that apply to small corporations, generate a maximum of € 40,000,000 in revenues, have a maximum balance sheet total of € 20,000,000 and no more than 250 employees.
- Large corporations exceed at least two of the three characteristics that distinguish medium-sized corporations.
The following applies to every businessperson. The Jahresabschluss must include the balance sheet (Bilanz) and the income statement (GuV). In addition, the balance sheet must always contain a closing balance sheet (Schlussbilanz in German) on which the opening balance sheet (Eröffnungsbilanz) of the following year is based. What the annual financial statements must contain depends heavily on the company’s respective legal form and whether it’s listed on the stock exchange or not:
- Corporations are obliged to supplement their Jahresabschluss with annexes in accordance with §§ 284-288 HGB (the article is in German) – meaning to prepare extended Jahresabschluss. For medium-sized and large companies, the following applies: In addition to the Jahresabschluss, a so-called management report must be added which, in contrast to the Jahresabschluss, does not only deal with past figures but also with forecasts, opportunities and risks. Small corporations generally do not require a management report.
- Listed companies must supplement the extended Jahresabschluss in accordance with § 264 of the German Commercial Code (HGB) with a capital outflow statement and a statement of changes in equity. In addition, they may add segment reporting on a voluntary basis. For medium-sized and large companies, even listed companies must prepare a management report in addition to their Jahresabschluss.
In addition, the Jahresabschluss must be accompanied by a declaration of completeness in accordance with § 4 para. 3 EStG. The purpose of this declaration is to prevent a tax adviser from infringing on the proper practice of the profession when working with him or her.
The German Commercial Code (§ 266 and § 275 HGB) also prescribes a classification scheme for entrepreneurs (this article is in German). This scheme ensures that the Jahresabschluss are generally understandable and that the reader of the balance sheet can clearly see how the company is developing.
But wait there’s more to consider when it comes to the Jahresabschluss! We have a checklist for annual accounts.
According to the German Commercial Code, every business must prepare annual accounts within a reasonable period of time. Large and medium-sized corporations differ from small corporations and merchants, see also the size classes according to § 267 of the German Commercial Code.
- Small corporations have six months time. If the type of enterprise does not count as a limited liability company, the Jahresabschluss must be prepared after a period appropriate to the orderly course of business. As a rule, this period corresponds to six months (§ 264 para. 1 sentence 4 HGB).
- Medium-sized and large corporations are obliged to prepare their annual accounts within the first three months of the new financial year (§ 264 (1) sentence 3 HGB)
- Sole traders benefit from a generous regulation: the orderly course of business is extended to six to nine months (§ 243 para. 23 HGB).
Once the Jahresabschluss have been prepared, the documents should be carefully reviewed before being sent on for approval. Where this activity is carried out by an auditor, the latter shall participate in the negotiations for the approval of the Jahresabschluss if one of the members so wishes. In the case of a GmbH, the shareholders otherwise take over the negotiations for the adoption of the Jahresabschluss. If several shareholders have an interest in the company, a shareholders’ meeting must be convened for this purpose.
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Which CEO signs the Jahresabschluss?
In principle, all board members of an AG (stock company) and all CEOs of a GmbH must sign the Jahresabschluss. If there has been a change of CEO in the meantime, the time of the final approval determines who is obliged to sign. If the new CEO is active at the time of the determination, he/she must sign the Jahresabschluss, even if he/she was not yet CEO during the preparation period.
How much does the preparation of a Jahresabschluss cost?
This one is a tough one to answer. How much you pay for the preparation of the Jahresabschluss depends on the effort involved. Naturally, maintaining a clean accounting system full-tuned for the Jahresabschluss makes things cheaper.
Although, your company’s annual accounts can be prepared in-house, given how complicated regulations in Germany are, finding a competent tax adviser is a worthy investment.
The information published on our site is all written and checked by experts with the greatest care. Nevertheless, we cannot guarantee the accuracy of this information, as laws and regulations are subject to constant change. Therefore, always consult an expert in a specific case – we would be happy to connect you with the right professional.
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