Accounting: The basics explained

This article explains the basics of Accounting and is aimed at readers who wish to familiarise themselves with the principles and obligations of this specialist area. The Accounting, The accounting system, often referred to as the „memory of a company“, is a systematic procedure for recording, recording and analysing all of a company's financial transactions. It serves not only to fulfil legal requirements, but also as an essential tool for internal management and decision-making.

The Financial accounting forms the backbone of every commercially active company. Its tasks range from pure documentation to the provision of crucial information for external recipients such as tax authorities and investors.

1.1 Legal basis and principles

Accounting in Germany is subject to a number of legal provisions that regulate its organisation and implementation.

1.1.1 GoB and Co.

The principles of proper Accounting (GoB) are unwritten rules that have developed from commercial law (HGB), tax law (AO) and generally recognised commercial practice. They are the foundation of all proper accounting and ensure that the financial situation of a company is presented objectively and comprehensibly. No fundamental changes to the GoB are expected for 2026, but their application remains constantly relevant. The central GoB include:

• Completeness: All business transactions must be fully recorded. No transaction may be omitted. This is comparable to building a house, where every wall and every beam must be recorded to ensure the stability of the entire structure.
• Correctness: Each booking entry must be factually correct, both in terms of the amount and the account. Error must be corrected and must not be concealed.
• Actuality: Only actual business transactions may be posted. Fictitious or planned transactions do not belong in the accounts.
• Clarity and clarity: The bookings must be understandable and traceable for third parties. A confusing or chaotic accounting system does not fulfil its purpose. This also means adhering to a standardised chart of accounts.
• Individual recording obligation: Each individual business transaction must be recorded in detail. Collective postings are only permitted in exceptional cases.

1.1.2 HGB, AO and other obligations

The German Commercial Code (HGB) sets out the framework conditions under commercial law, particularly for merchants. It regulates the obligation to Accounting, the preparation of balance sheets and income statements, valuation principles and retention obligations.

The German Fiscal Code (AO) regulates the tax law requirements for bookkeeping and is relevant for all taxpayers. It contains detailed regulations on the obligation to keep records, the deadlines for bookkeeping and the obligation to cooperate in tax audits. For 2026, it is to be expected that individual detailed regulations could be amended as part of possible legislative procedures such as the Annual Tax Act or due to changes in the coalition agreement. It is therefore advisable to attend relevant seminars and updates in order to stay up to date.

1.1.3 Obligation to provide documentation

Every posting requires a receipt. This principle is fundamental. A receipt is written or electronic proof of a business transaction. No posting without a receipt. This serves the purpose of verifiability and the prevention of manipulation. Electronic invoices (e-invoices) are becoming increasingly important and will replace paper receipts in many areas in the future. The necessary Infrastructure and the correct archiving of these digital receipts are key issues for 2026.

1.2 Double-entry bookkeeping

Double-entry bookkeeping is the predominant system of commercial accounting. Its name is derived from the fact that every business transaction is recorded in at least two accounts: one debit and one credit.

1.2.1 The principle of debit and credit

Debit and credit are not synonyms for ‚plus‘ and ‚minus‘, but placeholders on the T-accounts. The equation „assets = liabilities“ and „expenses = income“ must always be maintained. This is comparable to a set of scales that must always remain in balance to ensure accurate measurement. A business transaction is posted on the left-hand side (debit) of one account and on the right-hand side (credit) of another account, so that the sum of the debit postings always equals the sum of the credit postings.

1.2.2 Balance sheet accounts and profit and loss accounts

• Balance sheet accounts: They record the assets (assets) and liabilities (liabilities) of a company at a specific point in time. These include, for example, cash, bank, Receivables, liabilities, fixed assets and equity. At the beginning of an accounting period, the opening balances from the Balance sheet transferred to the balance sheet accounts.
• Profit and loss accounts: They recognise a company's expenses and income during an accounting period. Examples include sales revenue, rental costs, personnel costs and depreciation and amortisation. The balances of the profit and loss accounts flow into the Profit and loss account (income statement) and determine the company's result.

1.3 Central tasks of the accounting department

Accounting fulfils several core tasks that go beyond the mere recording of figures.

1.3.1 Documentation and accountability

Accounting documents all financial transactions in full. This serves to provide accountability to owners, creditors, employees and the state. It is proof of proper business management.

1.3.2 Information and control

The processed accounting data provides important information for corporate management. It enables the earnings situation, liquidity and asset situation to be analysed. On the basis of this Data This enables well-founded decisions to be made, for example on investments, pricing or personnel issues.

1.3.3 Taxation and profit determination

Accounting is the basis for determining the taxable profit and therefore for calculating taxes (income tax, Corporate income tax, Trade tax, Value added tax). The tax authorities rely on the correct information from the accounts.

2. accounting obligation 2026

Not every company is obliged to keep double-entry accounts. The obligation to keep accounts is subject to certain Criteria bound.

2.1 Thresholds and exceptions

Pursuant to Section 141 AO, traders whose turnover exceeds certain thresholds are required to keep accounts. The following thresholds are relevant for 2026 An annual turnover expected to exceed 600,000 euros or an annual profit of more than 60,000 euros in a calendar year. Sole proprietorships and freelancers that fall below these thresholds can calculate their profit using a revenue surplus account (EÜR). Separate thresholds apply for farmers and foresters.

2.2 Inventory, balance sheet and income statement

Anyone who is required to keep accounts must prepare a balance sheet at the end of each financial year. Inventory set up. The Inventory is a detailed list of all assets and liabilities.

2.2.1 The Balance sheet

The balance sheet is a statement of a company's assets (assets) and liabilities (liabilities) as at the reporting date. It provides information about the financial and asset situation. It is like a snapshot of financial health at a specific point in time.

2.2.2 The Profit and loss account (income statement)

The income statement compares the income and expenses of an accounting period and determines the success of the company (profit or loss). It is comparable to a film that shows the development over a period of time. Seminars and updates deal with current changes, for example in dealing with advance payments or recognising provisions.

2.3 Other mandatory documents: Cash book and receipts

The cash book is a separate, continuous record of all income and expenditure made in cash. It must be kept daily. As already mentioned, the obligation to keep receipts extends to all business transactions. Every incoming and outgoing payment must be documented by a receipt.

3. accounting in the course of the year

Accounting follows a fixed cycle. A „turn of the yearUpdate“ for 2026 will highlight important steps and possible changes.

3.1 Current bookings

During the financial year, all business transactions are recorded in chronological and factual order. This includes, among other things

• Incoming and outgoing invoices: Recording of supplier invoices and invoices to customers.
• Bank movements: Posting of incoming and outgoing payments via the bank account.
• Cash movements: Recording of cash transactions in the cash book.
• Pay slips: Posting of personnel costs.
• Depreciation and amortisation: Recognition of impairment of fixed assets.

3.2 Monthly and quarterly financial statements

Regular financial statements are used to check and prepare advance VAT returns. Checking bank and cash balances is part of proper accounting.

3.3 Year-end closing

Comprehensive finalisation work is carried out at the end of the financial year:

• Inventory: Physical inventory of inventories and fixed assets.
• Rating: Valuation of assets and liabilities in accordance with commercial and tax regulations.
• Delimitations: Temporal allocation of expenses and income (e.g. prepaid expenses, provisions). For 2026, it should be noted that potential legislative changes (e.g. Coalition Agreement 2025, Annual Tax Act) could result in updates to the calculation or treatment of provisions.
• Determination of the balance: The correct transfer of figures from the previous year is essential.
• Preparation of balance sheet and income statement: The formal preparation of the annual financial statements.
• Verification of invoice numbers: The complete sequence of invoice numbers is an indicator of regularity.

4 Digitalisation and future developments

Accounting is subject to continuous change, particularly as a result of the progressive Digitisation.

4.1 Digital processes and document management

Modern accounting systems enable largely paperless processing. Digital receipts, automatic imports of bank transactions and audit-proof archiving are common practice. E-billing, the use of which will be mandatory from 2025, represents a significant change that will be fully established by 2026.

4.2 Cloud solutions and automation

Cloud-based accounting software offers flexibility and enables access from any location. Automation functions, such as the automatic recognition of document data or the posting of recurring business transactions, take the pressure off accountants.

4.3 Effects on professional practice

The increasing Digitisation requires accountants to adapt their knowledge and skills. Further training in digital processes, data analysis and the use of new software solutions are essential for 2026 and beyond.

5. interesting facts and updates for 2026

 

Category	Description of the	Example values	Unit
Turnover	Total revenue from sales	150.000	Euro
Expenditure	Total expenses for operating costs	90.000	Euro
Profit	Sales minus expenses	60.000	Euro
Accounts receivable term	Average time to receipt of payment	30	Days
Accounts payable term	Average time until outgoing payment	45	Days
Liquidity level 1	Cash and cash equivalents in relation to current liabilities	120	Per cent
Equity ratio	Equity in relation to total assets	40	Per cent

Regular updates and compliance with new regulations are essential to meet the demands of the times.

5.1 Tax changes and relevant information

The Coalition Agreement 2025 and the Annual Tax Act may bring relevant changes for accounting practice in 2026. These may include adjustments to depreciation rules, tax exemption limits or the handling of special business transactions.

5.1.1 E-bill

E-invoicing will be mandatory for B2B sales from 2025 and will therefore be firmly anchored in accounting from 2026. Companies will have to adapt their processes accordingly in order to ensure electronic invoicing and processing.

5.1.2 Relevant threshold values

The minimum wage is expected to rise to €13.90 per hour on 1 January 2026. This must be taken into account in personnel planning and payroll accounting. The limits for low-value invoices may also be adjusted, which will have an impact on the design of invoices and the obligation to provide receipts. Information on this will be discussed in current seminars.

5.2 Further training and sources of information

Regular participation in further training is important for accountants and entrepreneurs in order to stay up to date. This includes seminars on the basics of accounting, but also special updates that deal with the changes of the respective year.

5.2.1 Courses and training for 2026

Offered, for example, by the IHK (or ask your tax office for seminars that are recommended. Private providers there's also....), courses on, among other things:

• Accounting
• Posting records
• Depreciation and amortisation
• Changes in inventories
• Chart of accounts
• Document organisation
• Digital Tools in accounting

5.2.2 Shortened retention periods

There may be changes to the retention obligations for receipts, for example due to simplifications for certain digital documents. Documents. It is advisable to keep an eye on the current legal regulations at the turn of the year. A „guided tour“ through the innovations in the seminars provides orientation here.

This article offers a Overview about the key aspects of accounting. It is recommended that you seek the help of a qualified tax advisor for complex issues and that you keep up to date with the latest information. Developments to inform. Accounting is a field that requires precision and timeliness.