Accounting practices

Learn accounting - The basics of accounting explained simply

EÜR or P&L, single or double-entry bookkeeping, issue offers and invoices correctly. Want to learn more about accounting and have no idea where to start?

In this article, we look at the question of what basic knowledge you need in accounting to be able to face everyday life as a self-employed person relaxed. We show you how you can learn to account and learn the basics in five steps and without much effort.

What is Accounting?

Accounting records and analyzes all payment transactions within a company. The term originates from the earlier practice of recording these in book form, handwritten and sorted according to receipts. Today, software solutions or IT systems are mainly used for this purpose. With their help, wage and salary payments, income and expenses, balance sheets and other accounting tasks can be quickly completed.

Why is accounting important for you?

Self-employed people, entrepreneurs and also freelancers do not decide for or against bookkeeping, they are legally obliged to do so. However, in different ways, because a distinction is made between :

  • simple bookkeeping (freelancers, small entrepreneurs, so-called "minor traders")
  • double-entry bookkeeping (companies with a certain turnover or legal form, so-called "Vollkaufleute")
  • cameralistic accounting (especially common in public authorities, which have to work with allocated budgets)


The obligation to keep accounts arises in principle for every commercial trader from §238 of the German Commercial Code (HGB). Here, it is additionally stipulated that the bookkeeping must be of such a nature "that it can provide an expert third party with an overview of the business transactions and the situation of the company within a reasonable period of time. It must be possible to trace the business transactions in their origin and processing."

The term "merchant", to which the legal requirements refer, can be understood here in a broader sense. This is because any person acting commercially who generates certain income is considered a merchant. In addition, other laws are in force. For example, those of the income tax law or the tax code, which prescribe who is obliged to keep accounts and in what form.

But even if these laws did not exist, it is also important for small business owners, freelancers and start-ups to get an overview of whether and how business is going and how it can be optimized from the very beginning. And that is exactly the task of accounting as well.

5 steps to becoming an accounting professional

Whether you do the bookkeeping yourself or delegate it, it is always worthwhile to deal with the basics in order to avoid mistakes. Unfortunately, it is not uncommon for freelancers or self-employed people to realize too late that

expenses and income are not in a profitable relationship to each other.

They do not comply with legal requirements and therefore have to expect tax debts or high additional payments and late fees.

So even if the subject may seem a little dry, with the right guidance and software that takes the routine work off your hands, you're sure to quickly get to grips with the basics of accounting. There are programs tailored to you, such as accounting software for SMEs, freelancers & more!



Step 1: Clarify the basics

As mentioned at the beginning, the legislator distinguishes between the obligation for single-entry and double-entry bookkeeping. In the narrower sense, only double-entry bookkeeping can actually be described as accounting.

The following are obliged to keep single-entry bookkeeping

  • Freelancers, regardless of the amount of their sales and profits. Who is included is regulated by §18 EStG.
  • Small entrepreneurs according to §19 UStG.


Double-entry bookkeeping is mandatory for

  • Companies and tradesmen with an annual turnover of € 600,000 or more or an annual profit of € 60,000 or more.
  • Companies that, due to their legal form, must be entered in the commercial register.

Freelancers who achieve comparable levels of earnings or turnover can also voluntarily commit to double-entry bookkeeping and the accompanying balance sheet preparation. This is because balance sheet accounting offers advantages in some cases, such as in the depreciation or valuation of assets.

If you want to be registered in the commercial register as a freelancer, you can apply for this voluntarily. However, you then enter into the obligation of double-entry bookkeeping.

But first, let's get back to basics. The first question is certainly: What exactly is the difference between single-entry and double-entry bookkeeping?


Simple bookkeeping via income statement (EÜR)

With simple bookkeeping, you basically have to do nothing other than diligently collect receipts and compare your income and expenses. The whole thing, however, in a form that is comprehensible to outsiders. Even with simple bookkeeping, you need to sort your filing system well and come up with a transparent system for assigning invoice numbers and allocating receipts.

You also need to know which expenses you can deduct from your income in order to determine your annual profit. If you are subject to sales tax, there is also the question of what tax rate to charge - usually 19% for goods and services and 7% for food, creative services that create copyrights.

At the end of the year, you then create the revenue surplus statement and add it to your income tax return. What remains on the credit side at the end is your profit. A balance sheet of assets or an inventory is not required.



Double-entry bookkeeping: account assignment and balancing.


Double-entry bookkeeping is more complicated, but still understandable even for laymen. Every business transaction of your company must be recorded in the accounts and assigned to an account. The account assignment decides to which account a business transaction should be posted. You can preassign the accounting document with a stamp or computer sticker. On the basis of the data of the initial account assignment, the accounting department knows to which account the document has to be posted. For this purpose, the accounting department requires the following data from a posting document:

  • Posting date and posting number
  • Document number and date
  • Posting text
  • Amount

In addition to account assignment, double-entry bookkeeping also includes the preparation of a profit and loss statement and balance sheet.


Inventory accounts represent existing values

The various accounts you set up for your accounting include inventory accounts and profit and loss accounts. Inventory accounts represent the active and passive assets of your company. For example, cash on hand, fixed assets, land, machinery, inventory and the like are recorded here. Positive values are recorded as assets, liabilities (for example, loans that need to be repaid) as liabilities. The comparison forms the basis of the annual balance sheet.



Profit and Loss Accounts Record Profits and Losses from Business Transactions

Profit and loss accounts put the cart before the horse. Here, the income (sales, revenue) from business activities is compared with the necessary expenses (expenditures). The comparison shows whether and which profits or losses the company has made in the fiscal year.

So as a rule of thumb you can remember: Stock accounts show the assets of a company as current stocks. Profit and loss accounts provide information about profits and losses from business transactions.



What you should not do as a layman, however, is to come up with such a system yourself now. Here the investment in an accounting software is worthwhile. This is because you only have to enter each business transaction once and the software then automatically assigns them to the respective accounts.