Financial accounting Flashcards
(50 cards)
§1 HGB*
§1 HGB:
(1) Merchant: a person engaged in commercial business.
(2) Commercial business: Any enterprise involved in commerce is a commercial business, unless its nature or size doesn’t require organised commercial operations.
§ 2 HGB*
§ 2 HGB:
If company is not deemed a commercial business under 1(2).
Then it becomes a commercial business if its name is in the Commercial Register, which is optional for the owner.
If registered Deletion is possible upon request unless Section 1(2) conditions are met.
§ 3 HGB*
§ 3 HGB Section 3:
(1) The regulations outlined in Section 1 do not apply to agricultural or forestry operations.
(2) Agricultural or forestry enterprises requiring organised commercial operations are subject to the provisions of Section 2. Once registered in the Commercial Register, the business name can only be removed following regular deletion procedures.
(3) If there’s a secondary business linked to an agricultural or forestry operation, the rules from subsections (1) and (2) also apply to this secondary business.
§ 5 HGB*
§ 5 HGB Section 5:
Once a business name is registered in the Commercial Register, it cannot be argued against someone using that name that their business is not commercial
§ 6 HGB*
§ 6 HGB:
(1) The regulations that apply to merchants also extend to commercial companies and partnerships.
(2) Associations granted merchant status by law, regardless of their enterprise’s purpose, retain their rights and duties, even if they don’t meet the criteria outlined in Section 1 subsection (2).
§ 238 HGB*
§ 238 HGB:
(1) Bookkeeping obligations:
Merchants must maintain books of accounts reflecting their commercial activities and asset positions, following generally accepted accounting principles.
(2) Retention of commercial letters:
Merchants are required to preserve representations of commercial letters sent, which can include copies, etc
§ 240 HGB*
§ 240 HGB Section 240 Inventory:
(1) Initial declaration of assets and liabilities: Merchants must accurately declare assets & liabilities value of individual assets and debts
(2) Annual inventory: Merchants are required to conduct an inventory at the end of each fiscal year.
(3) Treatment of certain assets: Property, plant, equipment, raw materials, and consumables, if regularly replaced and of minor overall value to the enterprise, can be stated at a constant quantity and value.
However, a physical inventory should typically be conducted every three years.
(4) Grouping of similar assets: Similar assets in inventories and other movable assets, as well as liabilities, may be grouped together for accounting purposes.
§ 241a HGB*
§ 241a
HGB Section 241a Exemption from the obligation to keep books of accounts and drawing up inventory:
Sole traders exempt from keeping books of accounts & inventory. If revenue < 600,000 and net income <60,000
New incorporations exempt if first balance sheet does not exceed values above
§ 242 HGB*
§ 242 HGB Section 242 Obligation to compile:
(1) Financial statement requirement:
Merchants must prepare a financial statement, consisting of an opening balance sheet at the start of their commercial business and a balance sheet at the end of each fiscal year.
(2) Profit and loss account:
Merchants must also create a comparison of expenses and earnings for the financial year.
(3) Annual report:
The balance sheet and the profit and loss account together form the annual report.
(4) Exemption for sole traders:
Sole traders as defined in § 241a are exempt from the requirements outlined in paragraphs 1 to 3. For newly founded companies, these exemptions apply if the values specified in § 241a are not exceeded on the first balance sheet date after incorporation.
§ 246 HGB*
§ 246 HGB Section 246 Completeness. Prohibition of offsetting:
(1) Inclusion of all elements in the annual report: The annual report must encompass everything unless specified otherwise by law. If assets belong to someone else this must be included in balance sheet. Liabilities should be written on debtors balance sheet. Goodwill acquired for consideration, is considered an asset with finite useful lives.
(2) Prohibition of offsetting: Assets cannot be offset against liabilities, expenses cannot be offset against earnings, and rights over immovable property cannot be offset against expenses over immovable property.
Assets intended exclusively to settle liabilities from long-term obligations, such as pension obligations, can be set off against these liabilities.
If the fair value of assets exceeds the liabilities, the surplus must be capitalised separately.
(3) Retention of recognition methods:
The recognition methods used in the previous annual report must be maintained, with proportional application of Section 252(2).
§ 247 HGB*
§ 247 HGB Section 247 Contents of the balance sheet:
(1) Separate presentation of components:
The balance sheet must separately and sufficiently detail all components of balance sheet
(2) Focus on fixed assets:
Only fixed assets for long term use included in balance sheet
(3) Note: Section 247(3) is omitted.
§ 249 HGB*
§ 249 HGB:
(1) Establishment of provisions:
Provisions must be created for uncertain liabilities and potential losses from pending transactions.
Additionally, provisions should be made for:Expenses omitted in the fiscal year for maintenance, occurring within three months of the following fiscal year, or for the removal of overburden, incurred in the subsequent fiscal year.
Warranties provided without a legal obligation.
(2) Limitation and reversal of provisions:
Provisions can only be reversed if the reason for reversal no longer applies.
§ 250 HGB
§ 250 HGB:
(1) Presentation of prepaid expenses and deferred charges: Prepaid expenses and deferred charges incurred before the balance sheet date, representing expenditures for a specific period after that date, should be shown on the assets side of the balance sheet.
(2) Presentation of deferred income:
Income earned before the balance sheet date, representing income for a specific period after that date, should be shown as deferred income on the liabilities side of the balance sheet.
(3) Treatment of differences in settlement amounts: If the settlement amount of a liability exceeds the issue amount, the difference may be included in prepaid expenses on the assets side of the balance sheet.
This difference should be amortized through ordinary annual depreciation, which can be spread over the entire term of the liability.
§ 252 HGB
§ 252 HGB:
(1) Valuation principles for assets and liabilities: Values in the opening balance sheet for the fiscal year must match those in the closing balance sheet for the previous fiscal year.
Valuation should be based on the going concern assumption, except when contrary to fact or law.
Assets and liabilities must be individually valued on the balance sheet date.
Valuation should be prudent, considering all foreseeable risks and losses up to the balance sheet date, even if they became known afterward. Profits should only be considered if realized by the balance sheet date.
Expenses and earnings for the fiscal year should be included in the annual report regardless of payment dates.
Retain the valuation methods used in previous annual reports.
(2) Permitted deviations: Deviations from the principles outlined in paragraph 1 are allowed only in exceptional and justified cases.
§ 253 HGB
§ 253 HGB:
(1) Valuation of assets and liabilities:Assets should not exceed their acquisition or production costs less depreciation, except for certain cases specified in paragraphs 3 to 5.
Liabilities should be stated at their settlement amount, and provisions should be established based on prudent business judgment.
Provisions for pension obligations may be recognized at the fair value of securities if this exceeds a guaranteed minimum amount.
(2) Discounting of provisions: Provisions with a residual maturity of over one year should be discounted at the average market interest rate corresponding to their remaining maturity.
Provisions for pension obligations or comparable long-term obligations may be discounted at a flat rate based on an assumed remaining term of 15 years.
The discount rate is determined by the German Federal Bank and published monthly.
(3) Depreciation of fixed assets: Depreciation of fixed assets should reflect their expected useful life, with ordinary depreciation spread over the years of expected use.
Extraordinary depreciation should be applied to fixed assets expected to be permanently impaired.
(4) Valuation of current assets: Current assets should be valued at the lower value resulting from a stock exchange or market price on the balance sheet date, or their acquisition or production costs.
(5) Retention of lower valuation: Lower valuations of assets and goodwill acquired for payment should be retained unless the reasons for such valuations no longer exist.
(6) Profits distribution and presentation: Differences in the recognition of provisions for pension obligations between the past ten fiscal years and the past seven fiscal years must be determined annually.
Profits may only be distributed if the available reserves meet certain criteria, and the difference in provision recognition must be presented in the financial statements.
§ 255 HGB
§ 255 HGB Section 255 Valuation yardsticks:
(1) Acquisition costs: Acquisition costs are the expenses incurred to acquire an asset and put it into operational condition, if they can be individually allocated to the asset. This includes ancillary costs and subsequent acquisition costs, with reductions in the purchase price that can be allocated to the asset being deducted.
(2) Manufacturing costs: Manufacturing costs are the costs of consuming goods and services to produce an asset, extend its useful life, or make substantial improvements beyond its original condition.
This includes material costs, production costs, special production costs, and a share of material overheads, production overheads, and value depreciation of fixed assets caused by production.
Research and distribution costs are not included.
(2a) Manufacturing costs of internally generated intangible fixed assets:
Manufacturing costs of internally generated intangible fixed assets are the expenses incurred in their development, defined as the application of research results or other knowledge for new or further development of goods or processes.
(3) Treatment of interest on debt: Interest on debt is generally not included in manufacturing costs.
However, interest on debt used to finance the production of an asset can be recognized if it relates to the production period, in which case it’s considered a cost of the asset.
(4) Fair value: Fair value is equivalent to the market price. If no active market exists, generally accepted valuation methods should be used.
If fair value cannot be determined, acquisition or production costs are carried forward. The last determined fair value is considered the acquisition or production cost.
§ 256 HGB
§ 256 HGB Section 256 Valuation simplification method:
Assumption for valuation:
Valuation of similar assets may assume that the assets acquired or manufactured first or last were consumed or sold first.
This method simplifies valuation based on the assumption of the order of consumption or sale of assets.
Application to the annual report:
The provisions of Section 240 (3) and (4), which relate to inventory valuation and depreciation of assets, also apply to the annual report. This ensures consistency in valuation methods across financial reporting.
§ 257 HGB
§ 257 HGB Section 257 Retention of documents - Retention periods:
Obligation to keep documents:
Every merchant must maintain the following documents in an orderly manner: Trading books, inventories, opening balance sheets, annual reports, individual financial statements, management reports, consolidated financial statements, group management reports, work instructions, and other organizational documents.
Commercial letters received.
Reproductions of commercial letters sent.
Vouchers for entries in the books kept according to § 238 (1) (accounting vouchers).
Nature of commercial letters:
Commercial letters pertain exclusively to documents related to commercial transactions.
Storage of documents:
Documents listed in paragraph 1 may also be stored as reproductions on image carriers or other data carriers, provided they meet certain criteria.
The reproduction or data must accurately correspond to the received commercial letters and accounting documents.
Documents must be available for the duration of the retention period and be legible at any time within a reasonable period.
Documents produced on data carriers based on § 239 Para. 4 Sentence 1 may also be stored in printed form.
Retention periods: Documents listed in paragraph 1 numbers 1 and 4 must be kept for ten years.
Other documents listed in paragraph 1 must be retained for six years.
Commencement of retention period:
The retention period starts at the end of the calendar year in which the last entry was made in the trading book, inventory was conducted, opening balance sheet or annual reports were established, financial statements were drawn up, commercial letter was received or sent, or accounting document was created.
§ 264 HGB
§ 264 HGB Section 264 Obligation to set up; exemption:
Extension of the annual report:
Legal representatives of a corporation must extend the annual report (§ 242) by an annex, which includes the balance sheet, profit and loss account, and a management report.
Capital market-oriented corporations not required to prepare consolidated financial statements must include a cash flow statement and a statement of shareholders’ equity in the annual report.
The annual report and management report must be prepared within the first three months of the financial year for the previous year. Small corporations may delay preparation up to six months.
Content of the annual report:
The annual report must give a true and fair view of the corporation’s net assets, financial assets, and results of operations.
Additional information must be provided in the annex if special circumstances prevent the annual report from giving a true and fair view.
Assurance by legal representatives:
Legal representatives of domestic issuers must give written assurance that the annual report provides a true and fair view, or the annex contains necessary information. Micro-capital corporations availing relief must provide additional information below the balance sheet.
Exemption for subsidiary corporations:
Subsidiary capital companies included in a parent company’s consolidated financial statement may be exempt from certain reporting requirements if specific conditions are met.
Exemption details must be disclosed in the parent company’s consolidated financial report annex.
Disclosure of relevant documents is required according to § 325 (1) to (1b).
Non-application of exemption:
The exemption under paragraph 3 does not apply if the parent company has prepared consolidated financial statements using an option provided for in the Publizitätsgesetz.
Relevant provisions, such as § 314 paragraph 3, remain unaffected.
§ 266 HGB
§ 266 HGB Section 266 Structure of the balance sheet:
Assets:
Fixed Assets:
Intangible Fixed Assets:
Internally generated industrial property rights and similar assets.
Concessions, industrial property rights, and similar assets acquired against payment.
Goodwill.
On-account payments.
Property, Plant, and Equipment:
Land, leasehold rights, and buildings.
Technical equipment and machinery.
Other equipment, factory, and office equipment.
On-account payments and plants under construction.
Financial Assets:
Shares of subsidiaries.
Lendings to subsidiaries.
Participation.
Lendings to companies with whom a participation ratio exists.
Securities of fixed assets.
Other lendings.
Current Assets:
Inventories:
Raw materials.
Unfinished goods and services.
Finished goods and services.
On-account payments.
Receivables and Other Financial Assets:
Trade receivables.
Receivables from subsidiaries.
Receivables to companies with whom a participation ratio exists.
Other financial assets.
Securities:
Shares of subsidiaries.
Other securities.
Cash and Equivalents:
Cash, deposits at the Federal Bank, deposits at banks, and cheques.
Prepaid Expenses
Deferred Tax Assets
Active Difference from Asset Offsetting
Liabilities:
Equity:
Subscribed capital.
Capital reserve.
Retained earnings:
Legal reserve.
Reserve for shares in a controlling or majority-owned company.
Statutory reserves.
Other retained earnings.
Profit/Loss carried forward.
Net profit/loss of the year.
Provisions:
Pension provisions and other obligations.
Tax provision.
Other provisions.
Liabilities:
Bonds (including convertible).
Liabilities to banks.
Advance payment received on orders.
Trade payables.
Liabilities arising from the acceptance of drawn bills of exchange and the issue of own bills of exchange.
Liabilities to subsidiaries.
Liabilities to companies with whom a participation ratio exists.
Other liabilities (including taxes, social security).
Deferred Income
Deferred Tax Liabilities
§ 267 HGB
§ 267 HGB Section 267 Description of size classes:
Small Capital Companies:
Do not exceed at least two of the following three characteristics:
EUR 6,000,000 balance sheet total.
EUR 12,000,000 sales revenue in the twelve months preceding the balance sheet date. An annual average of fifty employees.
Medium-sized Capital Companies:
Exceed at least two of the characteristics mentioned for small capital companies.
Do not exceed at least two of the following three characteristics:
EUR 20,000,000 balance sheet total.
EUR 40,000,000 sales revenue in the twelve months preceding the balance sheet date. An annual average of two hundred and fifty employees.
Large Corporations:
Exceed at least two of the characteristics mentioned for medium-sized capital companies. A corporation within the meaning of § 264d is always considered a large corporation.
Legal Consequences:
The legal consequences of the size classifications occur if they are exceeded or fallen short on the balance sheet dates of two consecutive fiscal years.
In the case of conversion or new formation, the legal consequences occur if the requirements of the size classifications are met on the first balance sheet date after the conversion or new formation.
Exception: This doesn’t apply if the legal entity changing legal form is a corporation or a commercial partnership within the meaning of § 264a (1).
Calculation of Average Number of
Employees: The average number of employees is calculated as the fourth part of the sum of the numbers of employees employed on specific dates throughout the year, including employees employed abroad but excluding those employed for vocational training.
Employee Representatives:
Information and disclosure rights of employee representatives under other laws remain unaffected.
§ 272 HGB
§ 272 HGB Section 272 Equity:
Subscribed Capital:
Stated at its nominal value.
Uncalled outstanding contributions to subscribed capital are deducted from “Subscribed capital.”
The remaining amount is shown as “called up capital” in the main column of the liabilities side.
Amounts called but not yet paid up are shown separately under claims.
1a. Own Shares Acquired: The nominal value or accounting par value of own shares acquired is openly deducted from “Subscribed capital” in the sub-heading.
The difference between the nominal value or accounting par value and the acquisition cost of own shares is deducted from available reserves.
Incidental acquisition costs are recognized as expenses for the fiscal year.
1b. After Sale of Treasury Shares: The deduction pursuant to paragraph 1a sentence 1 no longer applies.
Any difference from the proceeds of the sale exceeding the nominal value or arithmetic value is transferred to reserves.
Any excess amount beyond what’s offset against freely available reserves is transferred to capital reserves.
Ancillary costs of the sale are recognized as expenses for the fiscal year.
Capital Reserves:
Include:
Amounts achieved in excess of nominal value or arithmetic value when issuing shares.
Amounts obtained from issuing bonds for conversion and option rights to acquire shares.
Additional payments made by shareholders in return for preference shares or other additional payments to equity.
Revenue Reserves:
Formed from the result in the fiscal year or earlier fiscal years.
Include statutory reserves, reserves based on the memorandum or articles of association, and other revenue reserves.
Reserve for Shares in Controlling or
Majority-Owned Undertaking:
An amount equal to the value of shares in the controlling or majority-owned undertaking is placed in the reserve.
Can be created from existing freely available reserves.
Released when shares are sold, issued, redeemed, or if a lower value is recognized on the assets side.
Excess Profit Reserve:
Created if the profit attributable to a participating interest exceeds dividends received or entitled to be received.
The reserve is released when the corporation collects the amounts or acquires a right to their payment.
§ 275 HGB
§ 275 HGB Section 275 Structure:
Presentation Method:
Presented in graduated form using either the nature of the type-of-expenditure method or the cost of sales method.
Nature of the Type-of-Expenditure
Method:
Sales revenue
Increase or decrease of finished and unfinished goods
Other activated internal contributions
Other operational earnings
Cost of materials:
Expenses for raw materials and received goods
Expenses for received services
Personnel expenses:
Wages and salaries
Social security contributions and expenses on pensions and other benefits, including for pension schemes
Depreciations:
On intangible fixed assets and property, plant and equipment
On current assets exceeding customary depreciation and amortization
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries
Depreciation on financial assets and securities of current assets
Interest and similar expenses, including on subsidiaries
Taxes on income and earnings
Result after taxes
Other taxes
Net profit/loss of the year
Cost of Sales Method:
Sales revenue
Cost of goods sold and services rendered to generate sales revenue
Gross result from sales
Sales costs
General administrative costs
Other operational earnings
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries§ 275 HGB
Section 275 Structure: Presentation
Method:
Presented in graduated form using either the nature of the type-of-expenditure method or the cost of sales method.
Nature of the Type-of-Expenditure
Method:
Sales revenue
Increase or decrease of finished and unfinished goods
Other activated internal contributions
Other operational earnings
Cost of materials:
Expenses for raw materials and received goods
Expenses for received services
Personnel expenses:
Wages and salaries
Social security contributions and expenses on pensions and other benefits, including for pension schemes
Depreciations:
On intangible fixed assets and property, plant and equipment
On current assets exceeding customary depreciation and amortization
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries
Depreciation on financial assets and securities of current assets
Interest and similar expenses, including on subsidiaries
Taxes on income and earnings
Result after taxes
Other taxes
Net profit/loss of the year
Cost of Sales Method:
Sales revenue
Cost of goods sold and services rendered to generate sales revenue
Gross result from sales
Sales costs
General administrative costs
Other operational earnings
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries
Depreciation on financial assets and securities of current assets
Interest and similar expenses, including on subsidiaries
Taxes on income and earnings
Result after taxes
Other taxes
Net profit/loss of the year
Capital Reserves and Retained Earnings:
Changes in these may only be shown in the profit and loss account after the item “Net profit/loss for the year.”
Micro-Capital Corporations (§ 267a):
May present the profit and loss account as follows:
Sales revenues
Other earnings
Cost of materials
Personnel expenses
Depreciation
Other expenses
Taxes
Net profit/loss for the year
§ 277 HGB
§ 277 HGB Section 277 Provisions relating to individual items in the income statement:
Sales Revenue:
Comprises income from the sale and rental of products and from rendering services by the corporation after deduction of sales deductions, value-added tax, and other taxes directly related to sales.
Changes in Inventories:
Include changes in both quantity and value. Depreciation is considered, but only to the extent that it does not exceed the depreciation otherwise customary in the corporation.
Extraordinary Depreciation:
Shall be shown separately or disclosed in the annex. Earnings and expenses from the transfer of losses and profits received or transferred on the basis of profit pooling agreements, profit transfer agreements, or partial profit transfer agreements shall each be shown separately under the appropriate designation.
(Omitted)
Earnings from Discounting:
Shall be shown separately in the profit and loss account under the item “Other interest and similar earnings.”
Expenses from discounting shall be shown separately under the item “Interest and similar expenses.”
Income from currency translation must be shown separately in the profit and loss account under the item “Other operating earnings,” and expenses from currency translation under the item “Other operating expenses.”
