The Principles of Proper Accounting and Which Software Can Help You With This

1. What is the structure of the GoB?
2. What are the principles of proper accounting?
3. Who do the GoB apply to?
4. What happens if the GoB is violated?
5. How can accounting software help comply with the GoB?

While freelancers and small businesses are exempt, all other forms of companies as well as merchants must comply with the principles of proper accounting, or GoB for short. This means there are specific rules for entrepreneurs and creditors, which are set out in the Commercial Code (HGB). These are supplemented by recommendations from business and academia, as well as unwritten rules from the practice of merchants. They should not only be seen as annoying rules. They also protect against incorrect data and potential losses.

If you want to know what the GoB are, into which three areas they are divided and what happens if you violate them, this post will help you. We also introduce you to accounting tools that will help you conscientiously comply with the GoB.

What is the structure of the GoB?

The principles of proper accounting are composed of the following three areas:

• Principles of proper accounting
• Delimitation principles
• Principles of proper financial statements

Often only framework principles and supplementary principles are distinguished. The accounting issue is left out. However, we consciously address all three areas.

Since 2014, due to time constraints, there have been principles of proper keeping and storage of books, records and documents in electronic form as well as data access (GoB).

What are the principles of proper accounting?

If you're new to the GoB, it can indeed turn your synapses upside down. We give you an overview of the principles of proper accounting as they apply in Germany and illustrate them with examples. If you want to look up something later, you can simply bookmark this article.

Here are the principles of proper accounting:

• Principle of correctness and absence of arbitrary choices: Everything that takes place in the business context of your company must have actually happened. In addition, they should be derived by third parties from your books. We probably don't need to explain that omitting or inventing business events can have criminal consequences.
• Principle of regularity: All these incidents must be recorded directly and especially chronologically in your books. This serves mainly the next principle.
• Principle of clarity and transparency: This requires you to keep your accounting so that informed third parties, such as your trusted tax office, can completely and easily understand it. In this context, even the use of a living language is stipulated. Therefore, you should not write your bookkeeping in Latin.
• Principle of individual valuation: You must value all your assets and liabilities individually. This should prevent compensation. Exceptions include fixed assets and inventory, which can also be valued in groups.
• Principle of completeness: As the above two principles already strongly suggest, your bookkeeping must be seamless and complete. Otherwise, questions will be asked, in this case by the tax office and not by a significantly less dangerous prospective employer.
• Principle of safety: Your entire accounting and all related records and receipts must be kept within the periods applicable to you. This can be between 6 and 10 years. It is of vital importance that they survive until the end of a period. No matter whether you archive physically or digitally: folders must be collected at a protected place and cloud servers should be secure. Good Accounting software is especially concerning the latter your best friend.
• Voucher principle: Everything you book, you must prove and vice versa you must book every receipt. It’s as simple as that!

The following four principles are considered delimitation principles:

• Principle of matching: All income and expenses in the bookkeeping should only be assigned to the business year in which they were incurred. If a company, for example, declares some costs only next year to make the numbers look better, this is not permitted.
• Realisation principle: It's nice when you earn profits. However, for accounting, they only become relevant when they have been received.
• Imparity principle: On the other hand, you must take into account losses when they begin. If, for example, the value of materials that can represent assets decreases, or losses are expected from pending transactions, this must be stated immediately.
• Principle of caution: In the first place, it is up to you how much risk you take. However, the GoB require you as entrepreneurs to carefully weigh risks and losses and to take them into account in the future.

The following four principles deal with accounting:

As with the seven principles of proper accounting, so you must deal with accounting with regard to double-entry accounting.

• Principle of clear balance: Your balance must be clear, structured and easily visible to third parties.
• Principle of truthful balance: It must also clearly show the state of your company. Therefore, not only your bookkeeping but also your balance must be complete.
• Principle of balance identity: If you open your balance in the new business year, it must always match the final balance of the previous business year.
• Principle of balance continuity: The structure of your balance sheet must always be the same. Constant changes in the structure are therefore not permitted.

Who do the GoB apply to?

According to paragraph 1 of §238 of the HGB, all merchants are obliged to conduct business and books according to the principles of proper accounting. If you have founded a company that corresponds to a corporate form, for which registration in the commercial register is necessary, the GoB are immediately relevant to you. Therefore, also small business owners who have registered in the commercial register as well as agricultural and forestry businesses must adhere to the principles.

What happens if the GoB is violated?

The GoB correspond to an indefinite legal term. Therefore, no legal texts are available by definition. However, as entrepreneurs, you must follow the GoB because they have the character of a legal norm. This means they also apply in the event of a legal loophole and must always be applied bindingly.

If records are missing, there are gaps in the bookkeeping or bookings are wrongly noted, the tax office evaluates this as a violation of the GoB. This usually results in it having the errors corrected or doing a partial or, in the worst case, a complete estimate. While a correction of errors is still of a harmless nature, as long as they don't repeat conspicuously every business year, estimates by the tax office can become expensive and lead to a withdrawal of tax benefits. If the tax office is not amused about the present bookkeeping, a tax criminal trial is also not excluded.

How can accounting software help comply with the GoB?

The GoB poses many challenges for entrepreneurs. We make a game of sentence and victory for you: comply with the GoB, protect yourself from violations, use accounting software. The following 6 tools offer you optimal support to comply with the GoB. They make it easier for you to do business since they are built according to the principles of proper accounting. In addition, they have a GoBD-certification, except FastBill.

• Lexoffice – The cloud solution from Lexware combines invoicing, accounting, and banking. A perfect symbiosis for small and medium-sized businesses.
• Papierkram – The tool with the striking name bets on security, among other things, which has already been TÜV-certified. It offers everything you expect from digital financial accounting.
• Sage ERP – This solution can be used on both desktop and mobile. In addition to the GoBD certification, Sage 50 Cloud also meets the requirements of the Payment Services Directives (PSD2). All tools are on our Sage overview page by the software manufacturer.
• SevDesk – In Germany, SevDesk is one of the best-known names among accounting software. Accordingly, the tool is said to be used by over 80,000 customers. It brings with it everything needed for the observance of the GoB.
• FastBill – With the premium package, FastBill makes all dreams of correct accounting come true. It's aimed at small businesses. The tool works GoB-compliant, but currently lacks certification.
• OrgaMAX – The all-in-one office software covers all necessary accounting areas for medium-sized businesses, tradespeople, and service providers.

You can find more accounting tools on OMR Review. There you can compare more than 25 accounting software based on user reviews.