Who is allowed to account for the income and expenses
The income-expenditure account is the simple form of bookkeeping. This simplified bookkeeping can be used by all companies that are not obliged to keep double-entry bookkeeping. The self-employed who are allowed to determine their profit according to the rules of the income-expenditure account are in any case freelancers and, under certain conditions, sole proprietorships. Exactly what requirements these are, what procedures there are and what the difference between the income-expenditure account and the balance sheet is, is explained in more detail below.
Even as a sole trader with an entry in the commercial register, you can determine the profit according to the rules of the income-expenditure account. The prerequisite for this is that in two consecutive financial years the turnover is a maximum of 500,000 euros and the profit is a maximum of 50,000 euros. If either the profit or the turnover limit is exceeded, the income-expenditure calculation is omitted and a balance sheet must be drawn up. Corporations or partnerships are always entered in the commercial register and are also required to draw up a balance sheet. Companies without an entry in the commercial register can also make an income-expenditure account under the same conditions as freelancers.
Freelancers have it a lot easier in this regard. You can always calculate the income and expenses. This is completely independent of profit and turnover. Freelance entrepreneurs include all those who are active in either scientific, artistic, teaching, writing, or educational professions. These areas include, for example, architects, doctors, consulting business administrators, software developers, photographers and artists from the most common fields. In addition, if it is unclear whether it is a recognized freelance occupation, a look at Section 18 of the Income Tax Act can help. You can also inquire at the responsible chamber whether your own activity counts as a freelance.
Income-expenditure account – the advantages compared to the balance sheet
In the case of the income-expenditure calculation, EÜR for short, all that is sufficient is a simple comparison of the company’s income and expenses. With this variant, the tax office does not require an overview of all debts and assets. All that is required is a depreciation list of the existing fixed assets. A big advantage of the income-expenditure calculation is that taxes only have to be paid when the profit has actually been booked on the company account. The profit is calculated from the actual income and expenses. It doesn’t matter which financial year they belong to. This means that taxes are only paid when the profits have actually flowed. This creates a higher level of liquidity. The workload is also a lot less with the income-expenditure calculation due to the simplification than with the balance sheet. This saves a lot of time and nerves. Above all, the costs for a tax consultant who may be employed are many times lower.
The advantages of the balance sheet compared to the income-expenditure calculation
According to Topbbacolleges, double-entry bookkeeping is also used for a balance sheet. Although this is a lot more complex than the income-expenditure calculation, it is a lot more meaningful and clearer. The reason for this is obvious. The balance sheet lists the company’s entire business assets, which also shows whether the available assets come from own or third-party funds. The balance sheet also provides all the important information. Not only if you want to present the figures to the tax office, but also need them for other purposes, such as bank talks or investors. In order to apply for a loan or subsidy, it is usually not enough to just present an income-expenditure invoice. The numbers listed are often not meaningful enough in order to enable outsiders to gain sufficient insight into the company’s finances. In order to be able to apply for funds, you often need a separate statement of assets. A separate listing of the income and expenses in the requested period is also an advantage. Depending on how often you as a small business owner need the figures just described, it can make perfect sense to switch to accounting, even if this is not required by law. However, this has to be decided by yourself. Because once you switch to accounting, it will be difficult to go back to the simple income-expenditure calculation.
Tax burden of the two variants
Contrary to the long-term opinion that as an entrepreneur you pay more taxes with the balance sheet variant than with the income-expenditure account, you have to pay attention to the time periods. In the case of income-expenditure calculators, taxes are only paid once the profit has actually been booked. Accounting companies already pay tax on sales when the order has been placed. Seen over several years, both variants are taxed equally.