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- The balance sheet is a key accounting instrument defined in the German Commercial Code (§ 242 ff.).
- It is divided into assets (assets) and liabilities (liabilities and equity) in accordance with the principle of double-entry bookkeeping.
- The balance sheet fulfills three central functions: Information function, documentation function and profit calculation function.
- The valuation regulations and the principle of prudence are decisive for accounting in accordance with HGB.
- Differences between the commercial balance sheet and the tax balance sheet influence the valuation and presentation of company data.
- IFRS and US GAAP are gaining in importance and are striving for globally harmonized accounting.
- The development of international accounting standards requires highly specialized expertise from auditors.
Definition and legal basis
The balance sheet is a key accounting instrument and is defined in the German Commercial Code (HGB) in Section 242 ff. It represents a comprehensive comparison of all of a company’s assets as at a specified reporting date. The HGB legally obliges merchants to prepare a balance sheet at the end of a financial year. The balance sheet is divided into assets (assets) and liabilities (liabilities and equity). It follows the principle of double-entry bookkeeping, in which assets and liabilities are always balanced. Accounting is subject to specific valuation rules and principles of proper accounting. It serves to inform various stakeholders such as investors, creditors and tax authorities. The balance sheet forms an integral part of the annual financial statements and enables a comprehensive analysis of a company’s net assets, financial position and results of operations.
Structure and classification of the balance sheet
The balance sheet follows a standardized structure with two main pages: Assets and Liabilities. On the assets side, assets are classified according to their degree of liquidity, starting with non-current assets such as fixed assets. Fixed assets include assets that serve the company on a permanent basis, such as land, machinery and intangible assets. Current assets include current assets such as inventories, receivables and cash and cash equivalents. The liabilities side shows the origin of funds and distinguishes between equity and borrowed capital. Equity represents the shareholders’ funds, while liabilities represent liabilities to external creditors. The classification follows the principle of decreasing maturity.
Functions and meaning
The balance sheet fulfills three central functions: Information function, documentation function and profit determination function. The information function serves to provide company information for external stakeholders. Investors, lenders and supervisory authorities can use the balance sheet to assess the company’s situation. The documentation function ensures the traceability of business transactions and complies with legal documentation requirements. The profit calculation function enables the company’s profit to be calculated by comparing equity at the beginning and end of the financial year. The balance sheet forms the basis for important business figures and analyses.
Legal and tax aspects
Accounting is subject to extensive legal and tax regulations. The German Commercial Code defines principles such as the principle of prudence, the principle of completeness and the principle of individual valuation. There are differences between the commercial balance sheet and the tax balance sheet in terms of valuation and presentation. The commercial balance sheet is primarily used to inform external stakeholders, while the tax balance sheet determines tax assessment bases. Companies must differentiate between these balance sheet types and observe the respective regulations. Accounting requires highly specialized expertise and careful documentation.
International accounting standards
International accounting standards such as IFRS and US GAAP are becoming increasingly important. They aim to harmonize accounting standards globally. Listed companies often have to prepare their accounts in accordance with these standards. The differences to German accounting standards are considerable. IFRS places more emphasis on market values and future prospects, while German accounting emphasizes the principle of prudence. Multinational companies have to master both accounting systems. The harmonization of accounting standards promotes the international comparability of company data. Auditors and tax consultants must have highly specialized knowledge of these complex systems. The development of international standards is an ongoing process.
