Creating Annual Financial Statements: How to Prepare for and Implement Them Correctly

1. What is an annual financial statement?
2. Who has to prepare the annual financial statement?
3. EÜR or P&L: This income calculation method applies to your company
4. You have to pay attention to these deadlines
5. Here is how you successfully prepare your annual financial statement
6. Well prepared is half done

Every year, your company faces this big task - to prepare the annual financial statement. For the preparation you have to make specific preparations, consider tax aspects and meet deadlines. So that you are not standing in front of this annual to-do like a rabbit in front of a snake, but that you can successfully cope with it, you will read in the following sections what an annual financial statement is, who has to prepare it and how exactly you prepare and create a successful annual financial statement.

What is an annual financial statement?

The annual financial statement marks the end of your bookkeeping for a financial year, based on the German Commercial Code (HGB). Therefore it is a firm part of the accounting and provides information about your business assets and business result. When you prepare your annual financial statement, you show the financial status quo of your company. Therefore the balance sheet and the profit and loss statement (P&L) are the minimum components of an annual financial statement. By means of these, you determine the company's profit.

These components must be part of your annual financial statement.

Who has to prepare the annual financial statement?

Almost all merchants have to prepare an annual financial statement in terms of the HGB with the help of a P&L. This applies to your company if it has one of the following legal forms:

• Sole proprietorship and partnership (GbR, OHG, KG)
• Stock corporation (AG, GmbH, UG)

Which reports you have to prepare for the annual financial statement, depends on your company form and company size.

EÜR or P&L: This income calculation method applies to your company

If you, according to income tax law, are not obliged to do accounting, you might prepare a Income-surplus-account (EÜR) instead of a P&L. According to § 141 AO EstG this is the case, if your annual revenue is less than 600,000 Euro and your profit is less than 60,000 Euro. Also sole merchants, whose earnings and revenue are below certain thresholds, may use an EÜR.

The difference between a P&L and a EÜR lies in the kind of accounting. The double-entry bookkeeping is underlying the profit and loss statement, whereas at the income-surplus-account the revenues are compared to the expenses.

You have to pay attention to these deadlines

For the preparation and most of all handing in your annual financial statement to the treasurer, you have to stick to legal deadlines. For the annual financial statement and the EÜR the 31st July of the following year is the due date. If you have both prepared by your tax consultant, the deadline is extended to 28th February of the second following year. If you prepare it yourself and cannot meet the legal deadlines, you should request an extension at your local treasurer.

Here is how you successfully prepare your annual financial statement

Before you put it into practice, you first have to prepare a few things. Your annual financial statement considers all business transactions of the past business year. For the income-surplus-account, you capture all revenue and expenses, which were paid within the calendar year.

Step 1: Compile bookkeeping

For both income determination methods you need a monthly reliable bookkeeping, where you capture all facts. The proper bookkeeping is the first step to prepare your annual financial statement. This has the advantage, that your tax consultant is relieved from your preparatory work and their honorarium bill therefore is lower. It is also useful, if you begin to compile all important documents, like leasing contracts, rental agreements or receipts, as early as possible. Sort them before you begin the creation of your annual financial statement, so you can fully concentrate on it.

Step 2: advance return for turnover tax

Over the submitted advance return for turnover tax in the ongoing business year, you have pre-paid your annual turnover tax liability in monthly or quarterly sections. Pre-paying the value added tax gives you planning security and leads to the fact, that at the end of the year you have to make a smaller additional payment, receive a refund or you do not need to initiate anything else in this regard.

Step 3: Create annual financial statement

Generally, there are different ways how you can prepare an annual financial statement. You can do it yourself, if you only have to consider simple bookkeeping and follow few regularities. Another option is to hand over the creation of the annual financial statement directly to a tax consultancy company. The third option is the use of a professional accounting software, like sevdesk.

Small business owners can directly generate the values for an EÜR from sevdesk and fill in the EÜR Annex of the treasurer. But even if you are not small business owners, accounting software is a tool that saves you lots of work and trouble, because you can prepare your accounting with tools like sevdesk. This preparatory actions will cost you quite some time, if you do them manually. The accounting software is continuously and automatically working on all areas , so that all needed details are available at the creation of your annual financial statement, if you have properly booked over the year. You can look at your issued invoices and offers in sevdesk at any time and carry out the advance return for turnover tax directly from the software. If you include your online banking and other programs over the existing interfaces, you reduce manual effort and save valuable time. The access for your tax consultant is among these. Moreover, you can use the DATEV-export, manage your receipts digitally and dock your merchandise management systems.

Step 4: Send documents to tax office

Finally, the annual financial statement is „confirmed“, which is a formal act, performed depending on your company's form by your shareholders, the board of directors or other official representatives. Pay attention to the fact, that you always sign off your tax return and annual financial statement, to not get into trouble with the tax office. If your company should be a joint stock company or a GmbH with a certain size, you also have to comply with the publicity obligation. This states, that you have to regularly make your annual financial statement and your status report available to the public, to inform about your economic situation and possible changes.

Well prepared is half done

Preparing and creating your annual financial statement is a time-consuming task. But if you prepare it throughout the year, by making all postings and keeping receipts and invoices in order or manage them in sevDesk, half of the work is done before you even tackled your annual financial statement. A professional accounting software guides you safely through the different steps and gives you hints, if you forgot something. But definitely consider the legal deadlines for the creation of your annual financial statement, and if necessary, request an extension in time.