What are accounting costs and economic costs

Differences between financial accounting and cost and performance accounting

The differences between financial accounting and cost and performance accounting are in the details. Because the financial accounting with the abbreviation Fibu fulfills a different function in the company than the so-called cost and performance accounting. Despite their similarity, the two types of calculation basically pursue very different goals.

  1. The differences
  2. Financial accounting under the microscope
  3. Financial accounting - corporate duty
  4. The cost and performance accounting - a look at the detail
  5. Differences summary
  6. Legal regulations for financial accounting - accounting obligation
  7. Financial accounting principles
  8. Obligation to keep records in financial accounting
  9. Duty to file a tax return

1. Differences between financial accounting and cost and performance accounting - in brief

Financial accounting deals with the expenses and income of a company. It represents the economic situation of a company. For this purpose, the financial accounting documents the creditworthiness, the assets and the profit distribution. But the result of the financial accounting also shows an impending bankruptcy. The financial accounting also provides the basis for the tax declaration to the tax office.

The cost and performance accounting, on the other hand, calculates the costs incurred and the proceeds. Cost accounting determines the effectiveness of acquisitions. It provides information about the extent to which investments have proven to be economical.

Both types of invoices provide a basis for the business management of a company. The differences between financial accounting and cost and performance accounting, on the other hand, show up in various criteria.

2. Financial accounting under the microscope

Financial accounting records all of the company's arithmetic operations. She then posts the movements to accounts and documents them. Financial accounting asks three W-questions for three types of invoices:

  • what costs?
  • where originated?
  • what is spent on?

The accounting answer to the three questions provides the calculation and the operating result. The figures recorded in financial accounting flow into the final balance sheet and income statement (P&L) at the end of a period.

3. Financial accounting - corporate obligation

The financial accounting must withstand a review by the tax office. All relevant documents from financial accounting must be archived and kept ready for several years. One of the fundamental differences between financial accounting and cost and performance accounting is the legal obligation of companies. Because financial accounting not only has to follow certain legal requirements. As a fundamental component of accounting, it is mandatory for numerous types of companies.

4. Cost and performance accounting - a look at the detail

The cost and performance accounting is not mandatory under tax law. It is a form of billing that unfolds its benefits internally. The cost accounting takes over the tasks

  • calculation
  • control
  • planning

The cost and performance accounting determines profits and losses within the business processes. The cost and performance accounting examines the profitability of individual expenses in terms of their income. It thus increases the planning security for new investments and serves as an important internal control element for the company.

5. Differences Between Financial Accounting and Cost and Performance Accounting - Summary

The differences between financial accounting and cost and performance accounting lie in three basic criteria:

  • Goal setting
  • Invoice type
  • regulation

The goal in sight

One of the central differences between financial accounting and cost and performance accounting arises from the respective objective. While financial accounting provides transparent documentation of all processes, cost accounting is used for internal control. Financial accounting records all movements in a company. In contrast, cost and performance accounting focuses in particular on investments and their income. It determines the profitability of a company on the basis of its surveys.

The other way of calculating

There are also clear differences between financial accounting and cost and performance accounting in the method of invoicing. While the financial accounting records all income, expenses and investments and calculates the profit or loss from this, the cost accounting only focuses on components thereof. Because cost accounting compares the company's revenues with the relevant costs. It also examines in detail which costs were incurred in which department and for which services.

Legal regulation

While tax law regulates financial accounting in detail, every company is free to decide how to organize its cost accounting. Many types of companies have a financial accounting obligation. This gives rise to further regulations for execution, documentation and provision. Companies that are obliged to keep financial accounts must comply with commercial and tax law. All of the obligations listed there do not apply to cost accounting.

6. Legal regulations on financial accounting - accounting obligation

Basically, according to Section 238 of the German Commercial Code (HGB), every businessman is obliged to keep records of his business activities. The accounting obligation also results from the tax code in §§ 140 and 141. Small entrepreneurs and traders below specified profit and turnover limits are exempt from the accounting obligation.

Traders with low profits and sales

According to § 140 and § 141 AO, an accounting obligation only arises if a company has an annual turnover of more than 600,000 euros and / or a profit of more than 60,000 euros. As long as sales and profit are below the specified limits, there is no accounting obligation. Nevertheless, even companies that are exempt from the accounting obligation must record and archive all operating income and expenses. However, the type of recording is not subject to any formal regulations outside of the generally applicable requirements for invoicing and other regulations for traders.

The release from the obligation to keep accounts also has disadvantages. Central business activities, such as open items, have to be processed and controlled manually. In addition, at the end of the year there is usually a considerable amount of work involved in preparing the tax return.

Small business owner

Self-employed people with an annual turnover of up to 17,500 euros can register with the tax office as a small business owner and be exempt from sales tax. As a small business owner, you basically have no accounting obligation. For their tax return, small business owners have to prepare an income-surplus-account.

7. What are the principles of financial accounting?

Both the commercial transactions and the financial situation of the company must be clear and comprehensible from the bookkeeping. The entrepreneur must document his bookkeeping in such a way that an outside but expert third party can get an overview within a short period of time. The company's activities must be evident in terms of their origins and processes. The legislature also stipulates that companies must archive their documents.

8. Duty to record in financial accounting

Financial accounting obliges companies to keep their books properly, which in practice entails an obligation to keep records. Basically, the following processes must be recorded and presented in accounting:

  • Inventory
  • inventory
  • cash register
  • Bank accounts
  • Outgoing goods
  • bills
  • Goods Receipt
  • Incoming invoices

9. Duty to file a tax return

Companies with an obligation to keep accounts have to submit a VAT return in the year in which they are founded, as well as in the following year. After that, the advance VAT return must be submitted either monthly or quarterly, depending on the amount of annual sales generated. All other types of taxes are dealt with annually.

This post was published in December 2014 and updated in May 2018.

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