Preparing the annual financial statements correctly

What is the annual financial statement and who has to prepare it?

The annual financial statements are an important part of accounting and represent the financial condition of a company at the end of the financial year . Depending on the legal form and size of the company, they include various components such as the balance sheet , the profit and loss account (P&L) and, if applicable, an appendix. For smaller companies and freelancers, an income statement (EÜR) is often sufficient.

Who has to prepare annual financial statements?

Capital companies such as GmbHs and AGs are legally obliged to prepare complete annual financial statements in accordance with the German Commercial Code (HGB) .

Sole proprietorships and partnerships (e.g. GbRs) only have to prepare annual financial statements if they are required to keep accounts (e.g. if their turnover exceeds €600,000 or their profit exceeds €60,000 per year).

Freelancers and smaller companies without accounting obligations usually get by with an EÜR .

The annual financial statements are not only a legal requirement, but also serve as the basis for tax returns and communication with banks or investors.

Why are the annual financial statements so important?

The annual financial statements provide a comprehensive overview of the company's financial situation and enable informed decisions to be made for the future. At the same time, they form the basis for calculating the tax burden and show how successful the past financial year was.

What documents are required?

Before a company starts preparing its annual financial statements, it should ensure that all necessary documents are complete. These include:

• Accounting documents: Income statement (EÜR) or double-entry bookkeeping
• Receipts: invoices, receipts and bank statements (business and, if relevant, private)

• Inventory lists: An overview of inventory, machines and equipment
• Contracts: rental, leasing, loan or employment contracts
• Tax documents: advance declarations and notices from the tax office
• Depreciation Schedules: Overview of Long-Term Assets

Tip: Digital document management can make work much easier. Here we present some of the most common accounting software solutions.

Steps to prepare the annual financial statements

Step 1: Check and complete accounting

• Checking whether all business transactions are recorded correctly
• Comparison of accounting with bank statements to avoid discrepancies
• Closing open cash books and checking any discrepancies

Tip: Outstanding receivables and liabilities should be presented correctly – this also applies to advance payments.

Step 2: Take inventory

Why? Inventories at the end of the year must be recorded in order to accurately reflect the value of the company.

How? Counting goods, checking inventory levels and noting the current condition. Machinery or vehicles should also be assessed.

Important: Proper documentation of the inventory is often relevant for audits.

Step 3: Consider provisions and accruals

Provisions for future obligations such as outstanding tax payments, holiday pay or warranties must be taken into account in the annual financial statements.

Income or expenses that fall into the new year but affect the current year must be separated.

Example: An insurance premium paid in December but relating to the next year belongs in the deferred income.

Step 4: Calculate depreciation

Depreciation plans must be reviewed and adjusted if necessary.

Special depreciation or investment allowances should be considered in order to take advantage of possible tax benefits.

Tip: You should also consider adding new assets and removing decommissioned assets from the list.

Step 5: Check tax optimization

It can be helpful to check in advance whether it makes sense to make investments before the end of the year in order to reduce the tax burden. Tax-deductible expenses such as company parties, Christmas presents or training costs should also be considered.

Tip: A tax advisor can provide advice in advance when implementing such measures.

Important: Pay attention to deadlines

The deadlines for submitting the annual financial statements are governed by the German Commercial Code (HGB) . A distinction is made between the legal forms themselves, but also within the legal forms. For example, different deadlines apply to different corporations.

• Corporations: Six months after the end of the financial year until 30 June of the following year at the latest or three months until 31 March of the following year at the latest - depending on the balance sheet total, turnover and number of employees

• Sole proprietor: Less strict, usually six or nine months after the end of the financial year. If the annual financial statements are submitted to the tax office together with the tax return, the deadline is July 31st.
• Partnerships: Similar to sole proprietors, usually between six and nine months after the end of the financial year.

Please note: There may be special regulations or deadline extensions for each tax year – it is best to find out in good time.

Tip: Support from your tax advisor

Even if you can do many of the steps yourself, we recommend working with a tax advisor. A professional will ensure that everything complies with legal requirements and that tax advantages are used to their full potential. You're sure to find a suitable tax advisor nearby in our search .

Conclusion: Well planned is half done!

Proper preparation for the annual financial statements saves time and hassle - and provides an accurate overview of the company. With thorough documentation, careful controls and the support of a tax advisor, every company should be well prepared.