Financial accounting is an essential part of business accounting. It records all business transactions that can be expressed in figures, i.e. all costs and income. In larger companies, a distinction is also made between accounts receivable and accounts payable, as both processes (cost and income recording) can be carried out independently of each other. However, controlling that monitors financial accounting is crucial. In this dossier, we explain the role of transparent and correct financial accounting – especially for the subscription economy.
What is financial accounting?
The basis for the financial accounting of a company is the so-called profit and loss statement (P&L), as well as the balance sheet. This is based on the postings of all financial flows. Two criteria must be taken into account:
- The order must be chronological
- Depending on the nature of the entrepreneurial transaction is carried out factual order
The result of a financial accounting is the annual financial statement. I.e. a profit and loss account with all income and expenses as well as a balance sheet is prepared.
According to § 238 of the German Commercial Code (HGB), business accounting is generally required by law for all companies. The extent to which this must be done depends on the size of the company. Only freelancers and companies that make less than 60,000 euros in profit (or 600,000 euros in sales) are exempt from the classic bookkeeping requirement – they are exempt from the double-entry bookkeeping requirement.
Nevertheless, companies must also determine their profit and submit a simplified income statement to the tax authorities/tax office.
What are the main tasks of financial accounting?
At the beginning of correct financial accounting there should be a demand planning, also called Enterprise Resource Planning (ERP). This is a type of forecast calculation with the aim of planning and controlling all business tasks in good time and in line with requirements. This includes, for example, personnel, capital, operating resources, materials, technology and much more.
The 5 most important tasks:
Recording and documentation of all business transactions
Every entrepreneur who is obliged to perform financial accounting must document all business transactions, usually in the form of receipts, without gaps. This is the basis for any tax determination, as well as a subsequent irregular audit.
The preparation of a balance sheet
All debt and asset balances are documented for the balance sheet. This data is important information for creditors, shareholders and outsiders.
The determination of changes in inventories
If assets or liabilities have changed, these are recorded in a statement of changes in inventories.
The determination of profit (P&L)
The basis for the profit and loss statement is the documentation of all business transactions.
The taxation of corporate success
The taxation of the company’s success can be carried out on the basis of the income statement. Success is not always to be understood as positive. If there is a loss on the P&L at the end, this is referred to as negative success.
This must be determined in the context of an accounting period. I.e. the data and documents in the period between two financial statements. Here one distinguishes again between different financial statements. There is the annual financial statement, which is carried out at the end of the fiscal year. But there are also quarterly and monthly financial statements, whose accounting period lasts three months and one month, respectively.
What are the requirements for GoBD-compliant financial accounting?
In order to be GoBD compliant with financial accounting, some rules must be followed. It is important that each business transaction must be assigned to an accounting period. All business transactions within an accounting period must be recorded in the accounting system. A business transaction is an entry, such as a revenue or an expense on an account.
Business transactions are recorded in different accounts. After each accounting period (e.g. month or quarter), the accounts are closed. Once an accounting period is closed, the entries of this period may not be changed. Once the accounting period has been closed, it can be sent to the tax advisor or the tax office. In doing so, legal deadlines must be strictly observed.
What does this mean for the subscription economy?
Entrepreneurs in the subscription economy know that there are special demands on their financial accounting. Writing invoices via accounting programs or in Excel is one thing, but bringing together the various performance data streams is another. Where is the sales tax accounted for? What are the consumption-based goods and how much can the hardware costs be quantified?
Enterprise resource planning, as well as transparent and integrated controlling, is therefore indispensable in order to take account of the dynamic business processes and also to withstand a possible tax or economic audit at any time.
Logically structured and cloud-based financial accounting software is therefore an important foundation for financial accounting in the subscription economy. There are plenty of good providers here, each based on the needs required. What modules are included in the accounting program? Is there only one user or several? Which enterprise resource planning system can be integrated? What type of financial statements does the software support? Is the advance return for sales tax integrated? What support do I receive with the program? Similar to material needs, accounting needs should first be determined before researching suitable accounting software.
Integration capabilities with existing systems are also a critical factor that should not be underestimated for overall accounting and bookkeeping. Subscription management with integrations to existing accounting programs is therefore crucial for success, especially in the subscription economy.
Conclusion: Correct financial accounting is the be-all and end-all – but must not become the focus of the business
Especially in the online subscription business, fast, dynamic and efficient financial accounting in the accounting department is crucial for business success. With the right accounting program, this should not be a problem. However, when starting a new business, it is first important to become aware of the basic tasks of bookkeeping and accounting, followed by the question of who can take care of it.
In order to do justice to a complete and correct FiBu, an extra for this responsible person (as for example financial accountant) or even department, at least a tax office, should take care of the matter, in order not to lose the overview. This is the only way to create the basis for a transaction- and subscription-based business.