German Accounting Guide
This guide explains who in Germany must prepare an annual financial statement (“Jahresabschluss”), how the HGB size criteria work, which obligations apply at each size, what the statements contain, key deadlines, and a practical workflow to develop the HGB financials from the bookkeeping.
It’s written for founders, CFOs, accountants, and advisors who need a clear, action-focused overview that aligns with German Commercial Code (HGB) practice.
Who must prepare an annual financial statement in Germany?
Merchants (Kaufleute)
All merchants are required to keep books and prepare an annual balance sheet and income statement under the HGB. This covers most commercial businesses with ongoing operations.
Corporations (GmbH, AG, etc.)
Corporations have enhanced obligations: notes (Anhang), and—depending on their size—an audit and a management report (Lagebericht), plus publication.
Partnerships under § 264a HGB
Partnerships without a natural person with unlimited liability (e.g., most GmbH & Co. KG) are treated like corporations for accounting, audit, and publication.
Small trader exemption (§ 241a HGB)
Individual traders may be exempt from double-entry bookkeeping and the HGB annuals if they remain below statutory revenue and profit thresholds for two consecutive years.
HGB size classes and how they work
Thresholds and the 2-out-of-3 rule
Entities are classified as micro, small, medium, or large based on balance sheet total, revenues, and average number of employees. If an entity meets at least two of the three criteria for two consecutive years, that size applies for the next year.
| Size | Balance sheet total | Revenues (12 months) | Employees |
|---|---|---|---|
| Micro | ≤ €450,000 | ≤ €900,000 | ≤ 10 |
| Small | ≤ €7.5 million | ≤ €15 million | ≤ 50 |
| Medium | ≤ €25 million | ≤ €50 million | ≤ 250 |
| Large | > any medium threshold | > any medium threshold | > 250 |
Why the size class matters
The size class determines whether you must be audited, what you must publish, and how extensive your notes and management report must be. Smaller entities enjoy reliefs; larger ones face stricter requirements.
Obligations by size (single-entity accounts)
Micro
- Balance sheet and P&L; micro-entity presentation and disclosure reliefs.
- No management report; no statutory audit.
- Abridged filing permitted.
Small
- Balance sheet, P&L, and notes (Anhang).
- No management report; no statutory audit.
- Abridged filing (e.g., no P&L in the public filing).
Medium
- Balance sheet, P&L, notes, and management report.
- Statutory audit required.
- Some abridgements allowed in publication for medium-sized entities.
Large
- Full notes and management report.
- Statutory audit required.
- Full publication obligations (subject to permitted formats).
Note on § 264a HGB partnerships
Partnerships like the GmbH & Co. KG follow the same size-dependent obligations as corporations.
What the annual financial statements include
All merchants
- Balance sheet structured per HGB schema (e.g., § 266 HGB).
- Income statement (P&L) in staff form using either the total cost method or the cost-of-sales method (e.g., § 275 HGB).
Corporations
- Notes (Anhang): accounting policies and mandatory disclosures.
- Management report (Lagebericht): required for medium and large entities.
Deadlines: preparation, audit, publication
Preparation
- Medium and large corporations: prepare within the first three months of the new financial year.
- Small corporations: up to six months if consistent with ordinary business.
- General merchants: within a period consistent with orderly business.
Audit
Statutory audits apply to medium and large corporations (and § 264a partnerships) and must be scheduled so that approval and filing deadlines can be met.
Publication
- Most corporations: file with the Bundesanzeiger within 12 months after the balance sheet date.
- Capital-market-oriented companies: within four months.
From bookkeeping to HGB annuals: a practical workflow
1) Close the books & inventory
- Ensure GoB-compliant bookkeeping; perform year-end inventur and compile the inventar.
- Reconcile subledgers (AR/AP, fixed assets, payroll, bank) and lock posting periods.
2) Cut-off & accruals
- Post Rechnungsabgrenzungsposten (prepaid expenses/deferred income) and other receivables/payables for period allocation.
- Review revenue cut-off, WIP/POC where applicable, and event-after-reporting-date items.
3) Valuation & measurement
- Apply HGB principles (going concern, prudence, imparity, realisation, individual valuation, consistency).
- Test fixed assets for impairment; apply historical cost and depreciation rules; apply lower of cost or market to inventories/current assets.
4) Provisions
- Recognise provisions for uncertain liabilities and onerous contracts; document assumptions and estimates.
5) Taxes & deferred taxes
- Calculate current income and trade taxes; recognise deferred taxes where required.
6) Assemble statements
- Prepare the balance sheet and P&L using the prescribed HGB formats (total cost or cost-of-sales).
7) Notes & management report
- Draft the notes (policies, maturity analyses, related parties where required, etc.).
- For medium/large entities, prepare the management report (business course, position, risks/opportunities).
8) Audit & approval
- Coordinate statutory audit; finalise, obtain approvals, and resolve management letter findings.
9) File with Bundesanzeiger
- Submit within the deadline using size-based abridgements where applicable.
Frequently Asked Questions about German Accounting:
ℹ️ Click a question to reveal the answer:
Who is legally required to prepare an HGB annual financial statement?
All merchants (Kaufleute), corporations (GmbH, AG), and partnerships without a natural person with unlimited liability (e.g., GmbH & Co. KG) must prepare annual accounts. Small individual traders may be exempt under § 241a HGB.
What are the HGB size classes and thresholds?
Micro, small, medium, large—based on balance sheet total, revenues, and employees. Typical thresholds: Micro ≤ €450k/€900k/10; Small ≤ €7.5m/€15m/50; Medium ≤ €25m/€50m/250; Large above these.
How does the “2-out-of-3” rule work for size classification?
If a company meets at least two of the three criteria for a size class in two consecutive years, that class applies for the following financial year.
Which statements are mandatory for all merchants under HGB?
Balance sheet and income statement (P&L) using the HGB format (total cost or cost-of-sales method).
When are notes (Anhang) and a management report (Lagebericht) required?
Notes are required for corporations (with reliefs for micro/small). A management report is required for medium and large entities.
Who needs a statutory audit under HGB?
Medium and large corporations and partnerships under § 264a HGB require a statutory audit. Small and micro entities are typically not audited by law.
What are the preparation deadlines for annual accounts?
Medium/large: within 3 months of year-end. Small: up to 6 months if consistent with orderly business. Other merchants: within a reasonable, orderly period.
When must annual accounts be published (filed) in Germany?
Most corporations must file with the Bundesanzeiger within 12 months after the balance sheet date; capital-market-oriented companies typically within 4 months.
What are the publication reliefs for small and micro entities?
Micro and small entities can use abridged filing (e.g., no P&L in the public file; condensed balance sheet; limited notes), subject to specific rules.
How do I choose between the total cost and cost-of-sales methods in the P&L?
Total cost (Gesamtkostenverfahren) groups by type of expense; cost-of-sales (Umsatzkostenverfahren) groups by function (COGS, distribution, admin). Choose the format that best reflects your operations and maintain consistency year to year.
Which valuation principles apply when preparing HGB accounts?
Key HGB principles include going concern, prudence, imparity, realisation, individual valuation, and consistency. Measurement typically follows historical cost with appropriate depreciation and impairment.
What are RAPs and why do they matter at year-end (cut-off)?
Rechnungsabgrenzungsposten are prepaid expenses and deferred income ensuring correct period allocation (e.g., insurance paid in advance, revenues collected before service).
Which provisions (Rückstellungen) are typical under HGB?
Provisions for uncertain liabilities (e.g., warranties, litigation), onerous contracts, vacation, bonuses, and restoration obligations are common—document the estimate basis.
Are deferred taxes required in single-entity HGB accounts?
Deferred taxes are recognised where temporary differences exist and recognition criteria are met. They can arise from different HGB vs. tax valuations (e.g., depreciation, provisions).
What happens if our fiscal year is not the calendar year?
HGB allows any 12-month period as the financial year. Apply the same size criteria and deadlines relative to your chosen year-end.
Do we need consolidated (group) financial statements as well as single-entity HGB accounts?
Groups may need consolidated accounts if control and size conditions are met. Small groups can qualify for exemptions. Consolidation is separate from single-entity obligations.
What are typical penalties for late publication (filing) in Germany?
Late or missing filings can trigger orders and fines by the Federal Office of Justice. Timely submission and using abridged options (where permitted) mitigate risk.
In which language and currency should HGB statements be prepared and filed?
HGB statements are typically prepared in German and in EUR. Foreign-currency items must be translated under HGB rules at appropriate rates (transaction date or closing rate, depending on item).
How do we handle a change in size class year over year (e.g., small to medium)?
Size class changes usually take effect after meeting thresholds in two consecutive years. Plan ahead for new requirements (e.g., audit, management report) in the following year.
What practical steps convert bookkeeping into HGB annuals efficiently?
Use a checklist: close ledgers, perform inventory, post RAPs, apply valuation rules, recognise provisions, calculate taxes/deferred taxes, compile balance sheet & P&L, draft notes/management report, complete audit (if required), and file on time.