Cash-basis accounting

Cash-basis accounting is a tool for small-scale entrepreneurs in Germany to work out their profit precisely and efficiently. In this article, we focus on the basics of cash-basis accounting and explain how it works and what benefits it offers. You will also find tips for using ELSTER and a cash-basis accounting template.

What’s in this article?

What is cash-basis accounting?
How does cash-basis accounting work?
What is the difference between cash-basis accounting and double-entry bookkeeping?
Who can use cash-basis accounting instead of double-entry bookkeeping?
Which form do I need to use in ELSTER?
How to file a cash-basis accounting statement in ELSTER
Cash-basis accounting template

What is cash-basis accounting?

Cash-basis accounting is a basic method for calculating profits that is known for being particularly easy to use. It is not just an option but a legal requirement for many types of businesses in Germany.

Because of this legal requirement, it’s important to do your cash-basis accounting correctly and carefully to comply with tax regulations and avoid complications with the financial authorities. By using cash-basis accounting, businesses can fulfill their tax obligations and also gain key insights into their finances for making strategic decisions and forming long-term plans.

How does cash-basis accounting work?

Cash-basis accounting is a method that directly compares actual income and expenses over a financial year and follows the inflow and outflow principle—where transactions are only recorded when payments are made or received.

Cash-basis accounting is an alternative to double-entry bookkeeping and is particularly suitable for smaller businesses. It provides a clear picture of a business’s financial situation by directly comparing its income and expenses. This is important for ensuring financial stability and growth.

Cash-basis accounting does not require complicated entries in various accounts. Instead, all that is needed is a systematic list of all income and expenses, making bookkeeping much simpler. The profit or loss is the difference between the recorded income and expenses. Receipts are required for each entry to ensure that the records are verifiable and consistent.

What is the difference between cash-basis accounting and double-entry bookkeeping?

The difference between cash-basis accounting and double-entry bookkeeping lies primarily in the financial records’ complexity and level of detail. Cash-basis accounting is known for its simplicity and ease of use, while double-entry bookkeeping offers a deeper and more comprehensive view of a business’s financial activities.

With cash-basis accounting, only the actual cash flows—income and expenses—are recorded. In contrast, each transaction in double-entry bookkeeping (which is mandatory for larger businesses) must be recorded in at least two accounts: debit and credit. This method provides a more detailed view of a business’s finances because it records receivables and liabilities in addition to income and expenses. It is used for comprehensive accounting, including drawing up a profit and loss statement (P&L), which provides insight into the business’s financial position and stability.

Whether a business uses cash-basis accounting or double-entry bookkeeping therefore depends on its size. Smaller businesses benefit from the simplicity of cash-basis accounting, while larger businesses can carry out a more detailed financial analysis using double-entry bookkeeping. But both methods achieve the basic goal of recording profits and each offer their own benefits depending on businesses’ different needs.

Who can use cash-basis accounting instead of double-entry bookkeeping?

Cash-basis accounting is a simplified method of recording profits that not all businesses can use. Whether or not a business can use it is regulated by German tax law and depends primarily on the size and type of the business.

Who is entitled to use cash-basis accounting?

Cash-basis accounting can be used by certain groups of entrepreneurs. This division ensures that tax obligations are structured appropriately and that smaller businesses are not overburdened by the requirements of double-entry bookkeeping. The following types and groups of businesses can use cash-basis accounting:

Freelancers: People who work on a freelance basis such as doctors, lawyers, architects, or artists.
Small businesses: This means small businesses that are not classified as businesses according to the German Commercial Code (HGB).
Businesses with low revenue and limited profits: This category covers businesses whose revenue and profits are under certain limits. These limits are adjusted annually and are defined in the German Income Tax Act (EStG).

Legal limits

Using cash-basis accounting is subject to certain thresholds as set out in Section 4(3) of the German Income Tax Act. These thresholds define the maximum revenue and profit a business using cash-basis accounting can have before it must use double-entry bookkeeping. These limits are:

Revenue limit: The maximum annual revenue is 600,000 euros.
Profit limit: The maximum annual profit is 60,000 euros.

Exceptions and specific cases

While cash-basis accounting is a simplified and practical option for the above-mentioned groups, there are also exceptions where businesses that fall under the thresholds are nonetheless obliged to use double-entry bookkeeping. These include:

Corporations: Corporations such as limited liability companies (GmbHs) and joint-stock companies (AGs) must always use double-entry bookkeeping regardless of revenue and profit.
Businesses exceeding only one threshold: Businesses that only exceed one of the thresholds (revenue or profit) must also change to double-entry bookkeeping.

Cash-basis accounting reduces the amount of accounting work required and allows tax obligations to be handled in an efficient and straightforward manner. However, businesses should always keep an eye on the thresholds and exceptions to make sure that they are complying with legal requirements.

Which form do I need to use in ELSTER?

The official and standardized form, Anlage EÜR from the German Federal Ministry of Finance, is the cash-basis accounting form that you need to file in ELSTER. All businesses and self-employed persons using cash-basis accounting to determine their profits must use this form.

Important features of Anlage EÜR

Official form: Anlage EÜR is the official form for cash-basis accounting. Previously available options for informal profit calculations are no longer permitted.
Digital access: The form can be found on the ELSTER platform in the forms and services section. You will find it in the alphabetical list of forms.
Content structure: Anlage EÜR requires a detailed breakdown of operating income and expenses to determine business profits. This also includes additional documents such as “AVEÜR” (fixed assets form), “Anlage SZ” (nondeductible interest expenses form), and others depending on the business’s individual circumstances.
Filing with income tax returns: Send the completed form to the tax office electronically through ELSTER along with the income tax return. For entrepreneurs, this is mandatory and includes all relevant attachments.

How to file a cash-basis accounting statement in ELSTER

Submitting the cash-basis accounting statement electronically through the ELSTER tax return management program is efficient and makes the process of filing a tax return in Germany easier. ELSTER is a user-friendly platform, allowing users to complete the required forms and submit them securely.

Step-by-step instructions for filling in the cash-basis accounting form in ELSTER

1. Access Mein ELSTER: First, go to the Mein ELSTER website. Then log in to your account. If you haven’t registered yet, you will need to sign up.
2. Search for the correct form: Once you’ve logged in, the forms and services tab will appear. Under “All forms,” you will find the forms you need to file a cash-basis accounting statement. The forms are sorted alphabetically, which makes it easy to find.
3. Fill in Anlage EÜR: Enter the operating income and expenses into Anlage EÜR. This covers all the business’s financial transactions over the last financial year.
4. Include additional attachments: Depending on requirements, you might need to attach additional forms to Anlage EÜR (e.g., AVEÜR for fixed assets, Anlage SZ for nondeductible interest expenses, Anlage SE for extraordinary profit processing, or Anlage ER for additional statements). You can also add these additional attachments after you’ve completed the main form.
5. Calculate profit: Profit is calculated automatically in ELSTER by deducting the expenses you have entered from the income.
6. Submit the tax return: The Anlage EÜR is submitted to the relevant tax office with the income tax return and any other tax returns, such as the value-added tax (VAT) return or the trade tax return. This is done directly through ELSTER.

Deadlines and notes

Filing deadline: You should submit the income tax return including Anlage EÜR by July 31 of the following year. This guarantees that tax deadlines will be met.
Changes since 2017: Note that since 2017, using the standardized cash-basis accounting form has become mandatory. There is no longer any option of submitting an informal cash-basis accounting statement.

Using ELSTER to file the cash-basis accounting statement is a modern and efficient solution that significantly reduces the administrative workload. Submitting it digitally speeds up the process and also improves the accuracy and security of tax documentation. There are also several programs for keeping cash-basis accounting records that have integrated ELSTER modules for convenient submission. These include:

sevDesk
Lexoffice
BuchhaltungsButler
FastBill
WISO MeinBüro