How to use this book
This book aims to provide an introduction to financial accounting based on German Generally Accepted Accounting Principles (GAAP). This is not a new topic; in fact, there are many good textbooks for students and even more advanced literature for scholars and professionals. Not surprisingly, since the topic is German GAAP, all such works are in German. To reach a larger community, this book was written in English.
Apart from Chapter 1, which presents a general overview, all other chapters focus on the specifics of German GAAP. General questions of financing or financial analysis that are closely related to some topics but not specific to German GAAP have been omitted.
Even if the book touches on many topics and explains many concepts, it represents a first introduction to the topic; it is impossible to sum up thousands of pages of commentary, notes, interpretations, and so forth in a short book. If deeper insights are required, a reference to the German literature is necessary. To allow for that, all legal texts and basic standard literature are referenced. All legal references refer to the Commercial Code (Handelsgesetzbuch HGB) unless stated otherwise.
Because the International Financial Reporting Standards (IFRS) are widely adopted across the world, the important differences between German GAAP and IFRS are highlighted at each topic.
There is a long-standing tradition in Germany whereby the commercial balance sheet (based on the Commercial Code) should be – at least to a large extent – identical to (or congruent with) the tax balance sheet. In recent years, conformity to this tradition has been relaxed, though it remains relevant. German tax law will be mentioned only insofar as it is necessary to understand commercial financial statements or common practices used in their preparation; the book does not provide a systematic overview of German corporate taxes.
Legislation referred to in this book is as of March 2017.
There are two large parts:
Part I explains the theory, starting with very basic concepts and concluding with consolidated financial statements. Students should start at the beginning and work through the different topics. Examples, but no specific exercises, are given.
Chapter 1 gives a brief introduction to financial accounting in general; readers with sufficient prior knowledge may skip this chapter.
Chapter 2 highlights the general approach to German GAAP, focusing on basic principles and methods used in the different specific regulations.
Chapter 3 provides a detailed explanation of individual financial statements, including their various elements, for example the balance sheet and income statement, and their contents, for example non-current assets and equity.
Chapter 4 continues the explanations with consolidated financial statements, focusing on consolidation procedures.
Part II is composed of exercises with solutions to the different topics explained in Part I. All exercises are categorized according to the complexity of the exercise:
–Knowledge: a reproduction of knowledge is necessary to complete this exercise.
–Knowledge/Application: a mere reproduction is not sufficient; the knowledge must be applied in a specific situation.
–Knowledge/Application/Transfer: not only does the knowledge need to be applied in a specific situation, but either different topics are combined or further analysis of the results or the concepts used is necessary.
The approximate amount of time necessary to complete each exercise is given; note that the assumption here is that the reader is ready to take the test; initially you will probably not be able to do the exercises in the indicated amount of time, but you should train to do so.
Chapter 5 provides exercises sorted by topics to get started or work through in parallel to the theoretical explanations. Solutions immediately follow the exercises.
Chapters 6 and 7 provide more complex case studies that combine different topics. To allow for a more exam-like training, Chapter 6 presents the exercises and Chapter 7 the solutions.
Additional information
Chapter 8 provides a glossary of the most important terms and their explanations. Chapter 9 provides an English-to-German vocabulary of the most important terms. For many terms there is no single, clear translation from German to English; often British English and American English or British accounting and US accounting use different terms. I kept the translations as close as possible to the terms used in the International Financial Reporting Standards (IFRS).