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Income-Expenditure in English Part VI


Who does income-expenditure calculation

An income-expenditure invoice is a form of bookkeeping by trades people, which must be presented to the tax office at the end of a financial year in order to determine the tax. This method is a legally prescribed method for determining profits. This form of bookkeeping is only used by companies in the liberal professions and small businesses whose sales and profits do not exceed a legally prescribed limit. According to § 4 Paragraph 3 of the Income Tax Act, taxable entrepreneurs who can determine their profit as the excess of operating income over operating expenses are entitled to the income-expenditure account.

In addition, this can only be used by companies that are not legally obliged to keep double-entry bookkeeping and balance sheets due to high sales and profits. However, this option must be expressly used when the company is founded. In plain language, this means that when a business start-up is reported, it must be stated which form of bookkeeping is being used. If the income-expenditure account is chosen and the sales exceed the legal limits, the responsible tax office reports to the entrepreneur with the notification that the balance sheet or double-entry bookkeeping must be used from now on. However, if you are allowed to use the income-expenditure calculation, you can also voluntarily choose double-entry bookkeeping, as this can also bring advantages under certain circumstances.

Record-keeping obligations for small business owners

Small business owners and freelancers who account for income and expenses do not have to keep a cash book , but they are obliged to keep records. This means that entrepreneurs have to keep their income and expenses as individual records. However, a mere collection of documents without a chronological list is not sufficient. A simple recording of a total in the form of a daily solution is also insufficient. Because with a cash report, the recording of the so-called daily solution as a total cannot be sufficiently checked.

Determination of profit in the income-expenditure account

According to Whicheverhealth, the double-entry bookkeeping as well as the income-expenditure accounting basically pursue one and the same goal. Determining the amount of profit or loss. Depending on how the business year turned out. The difference is made by the recordings and the technology. While there are account frames and accounts in double bookkeeping, this is completely eliminated in the case of income and expenditure accounts. The basis for determining profits in double bookkeeping is the collection of receipts and the listing of income and expenses for business transactions. To determine the monthly sales tax to be paid, the receipts are required as a listed record. A spreadsheet or a simple accounting program can be used for this.
Just as the sales tax is now determined in double bookkeeping on the basis of the receipts, one also works in the income-expenditure calculation when determining profits. For this purpose, the total of the operating income is added up and the total of the operating expenses is deducted from this result. If the income was higher than the expenditure, a profit was made. The other way around, one then speaks of a loss. In addition, most of the self-employed who keep an income-expenditure account keep a cash book as the basis for the receipts. In addition, the bank documents are relevant, but the list of the respective business cases is also important. In addition, the income-expenditure account differs from double-entry bookkeeping in that no accounts are used and no actual entries are made.

Small business owners and sales tax

Self-employed people who achieve a net turnover of a maximum of 30,000 euros in a calendar year automatically fall into the so-called small business regulation. This has both tax advantages and disadvantages. The effects of the small business regulation are:

  • No sales tax may be shown on invoices
  • No sales tax payment to the responsible tax office
  • There is also no need for advance VAT returns
  • The annual sales tax return is also only to be submitted for sales of more than 30,000 euros, whereby the tax exemption remains in place.

In order to calculate the small business limit, the sales tax must be deducted. This also applies if the small business owner does not actually have to pay any sales tax. However, if the small business owner wishes to claim the input tax deduction, he has the option of sending a written declaration to the responsible tax office, in which it is pointed out that the small business regulation is waived. However, this declaration of waiver of the regulation is only recommended if the input tax amounts are higher than the sales tax. However, this written declaration on the waiver of the small business regulation is binding on the entrepreneur for a full five years. During this time, the entrepreneur is entitled to deduct input tax, but must pay the sales tax to the tax office.

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