Definition
According to the German Commercial Code, all merchants, corporations and equivalent commercial partnerships are obliged to prepare annual financial statements. It represents the arithmetical financial statement of a commercial business year. It consists of the annual balance sheet (balance sheet with the closing balances of the asset and liability accounts), the profit and loss account (P&L), in which the expenses and income of the financial year are listed, as well as, in the case of corporations, notes and, if applicable, a management report. The annual financial statement must comply with the principles of proper bookkeeping or accounting.
The annual financial statement fulfils two important tasks. On the one hand, they provide information on the economic situation of the respective company (information function) and on the other hand, they form the basis of assessment for the distribution of the result (payment assessment function). They are the basis for planning and decision-making by the company and its stakeholders, as well as the assessment basis for financiers in capital transactions (e.g. granting of loans).
Bettina Dirks
