What is accounting?

Accounting is an essential part of corporate management and serves to systematically record, monitor and analyse all of a company’s financial transactions. It is not only a legal requirement, but also an important tool for operational planning, control and decision-making. Accounting ensures transparency and traceability of a company’s financial situation and is crucial for the preparation of financial statements and tax returns.

Important aspects of bookkeeping:

1. Objectives of bookkeeping:
   

• Recording business transactions: All financial transactions, such as income and expenditure, must be systematically recorded in order to obtain a comprehensive overview of the company’s financial situation.
• Documentation and proof: Bookkeeping serves as legal proof for tax authorities, lenders and other stakeholders.
• Decision support: By analysing accounting data, companies can make informed decisions about investments, cost management and strategic direction.
  

1. Accounting principles:
   Accounting follows certain basic principles, including
   

• Documentation requirement: All business transactions must be supported by documentary evidence (invoices, receipts, etc.).
• Double-entrybookkeeping: In double-entry bookkeeping, every business transaction is recorded in at least two accounts, which increases accuracy and traceability. This helps to recognise errors and irregularities at an early stage.
• Prudence principle: In accounting, potential risks and losses should be recorded at an early stage, while profits are only realised when they are certain.
  

1. Types of accounting:
   

• Financial accounting: This records all financial transactions of a company and prepares the annual financial statements (balance sheet, profit and loss account). Financial accounting is externally orientated and serves to provide information to third parties such as investors and tax authorities.
• Cost accounting: Cost accounting is used for the internal control and evaluation of a company’s cost structure. It helps with pricing, cost control and profitability analyses.
• Accounts receivable and accounts payable: These areas are responsible for the management of receivables (debtors) and payables (creditors). They ensure that payments are received on time and expenses are monitored.
  

1. Accounting software:
   Specialised software solutions are often used in modern accounting. These programmes automate many accounting processes, support the creation of reports and facilitate compliance with legal requirements. Well-known software solutions include Lexware, DATEV, Sage and SAP.
2. Legal framework:
   Accounting is subject to strict legal regulations in Germany, which are set out in the German Commercial Code (HGB) and the German Fiscal Code (AO). These regulations stipulate how accounting documents must be stored, which formats must be used and which deadlines must be adhered to.
   

Advantages of proper bookkeeping:

• Transparency: Well-managed bookkeeping creates transparency about the company’s financial situation, which builds confidence among investors and lenders.
• Legal certainty: Compliance with legal regulations and correct documentation of all financial transactions minimises legal risks and potential penalties.
• Optimisation of decisions: Informed decisions based on up-to-date and accurate financial data help companies to better plan their strategies and achieve their goals more efficiently.
  

Conclusion:

Accounting is a key element of business management that goes far beyond the mere recording of financial transactions. It provides the basis for the preparation of financial statements, the fulfilment of tax obligations and the support of strategic decisions. By using modern software solutions and complying with legal requirements, companies can organise their accounting processes efficiently and transparently, leading to better financial health and stability.