Financial Accounting (FiBu)
Financial accounting (FiBu) is the part of accounting that records every business transaction of a company completely, by value and by period, on accounts, and derives from it the annual financial statement under commercial and tax law, consisting of the balance sheet and the profit and loss statement.
Financial accounting (FiBu) is the area of business accounting that documents all of a company’s business transactions completely, in an orderly way and in monetary units on accounts. This continuous record produces, at the end of a period, the central financial statements: the balance sheet, which contrasts assets and capital, and the profit and loss statement (P&L), which shows the company’s performance. It is therefore the legally mandated, externally oriented foundation of corporate accounting.
Unlike the internally focused cost and management accounting, financial accounting serves primarily external addressees: the tax office, banks, shareholders, creditors and the public. In Germany its rules derive from the Commercial Code (HGB) and the Fiscal Code (AO); it follows the principle of double-entry bookkeeping, in which every transaction is posted to at least two accounts – as a debit and a credit. Modern companies no longer keep their financial accounting manually but as a module of an ERP system or in a connected accounting software.
At a glance
- Part of external accounting – records all business transactions by value on accounts
- Based on double-entry bookkeeping: every transaction is posted as a debit and a credit
- Produces the balance sheet and the profit and loss statement (P&L) as the annual financial statement
- Legal basis in Germany: HGB and AO, made concrete by the GoBD
- Divided into the general ledger and subsidiary ledgers (accounts receivable, accounts payable, fixed assets, cash/bank)
How financial accounting (FiBu) works
The basic principle of financial accounting is double-entry bookkeeping. Every business transaction is recorded via a journal entry on at least two accounts: once as a debit and once as a credit, whereby the totals of both sides must always be equal. When a customer pays an invoice by bank transfer, the journal entry reads, for example, „Bank to Receivables“ – the bank account increases and the receivable is cleared. This system ensures that the balance sheet always stays in equilibrium and that errors become apparent.
The starting point of every posting is a document – the principle being „no posting without a document“. The individual accounts are structured in a chart of accounts, in Germany usually according to DATEV’s SKR 03 or SKR 04. At the end of the period all accounts are closed: the income accounts flow into the profit and loss statement, the balance-sheet accounts into the balance sheet. Together with any notes and management report, they form the annual financial statement.
General ledger and subsidiary ledgers
Financial accounting is divided into the general ledger and several subsidiary ledgers. The general ledger holds all general accounts and is the basis for the balance sheet and P&L. The subsidiary ledgers provide the detail for individual areas: accounts receivable manages the receivables from customers, accounts payable the liabilities to suppliers, fixed-asset accounting the non-current assets and cash/bank accounting the payment transactions. Every subsidiary-ledger entry is transferred in condensed form into the general ledger.
Components and accounts of the FiBu
The accounts of financial accounting are fundamentally divided into balance-sheet accounts and income accounts. Balance-sheet accounts – such as bank, cash, receivables, liabilities or fixed assets – represent asset and liability positions and feed into the balance sheet. Income accounts such as sales revenue, material expense or personnel expense record expenses and income and lead into the profit and loss statement. Tax accounts for output and input VAT ensure that value-added tax is correctly remitted to the tax office.
A cleanly maintained chart of accounts is the prerequisite for meaningful analyses. Through the trial balance, the business analysis (BWA) or the advance VAT return, the company can access the current status at any time. The clear separation of accounts receivable and accounts payable is important so that open items – that is, invoices not yet paid – remain traceable at the customer and supplier level.
Why financial accounting matters
Financial accounting first fulfils a legal obligation: anyone required to keep books under the HGB must record their business transactions properly and prepare an annual financial statement. Beyond that, it is the most reliable data source on a company’s economic situation. Tax returns, the advance VAT return and the basis for determining profit and distributions all draw on it.
Financial accounting is also indispensable for decisions and external relations. Banks require solid figures for lending, investors assess earnings performance based on the P&L, and management steers liquidity and profitability on the basis of accounting data. Timely, accurate financial accounting also shortens the effort of the annual financial statement and reduces risks during a tax audit.
Financial accounting (FiBu) in the ERP system
In an ERP system, financial accounting is closely interlinked with the upstream processes. Journal entries are generated automatically from order processing, purchasing and inventory management: an issued outgoing invoice creates an accounts-receivable document, a goods receipt with a supplier invoice creates an accounts-payable document. This eliminates duplicate entry and reduces sources of error between operational business and accounting.
Many mid-sized companies in the DACH region, however, do not use the integrated FiBu of their ERP to its full extent but hand the data over to the tax advisor. This is why the DATEV interface is a central criterion: journal entries, open items and digital documents are exported to the firm in a structured way. Whether a system fully maps financial accounting itself or delivers data as a pre-system to an accounting solution differs by product – examples can be found under „Related systems“.
GoBD and audit compliance
Electronically kept financial accounting must comply with the GoBD, the German Federal Ministry of Finance’s principles for the proper keeping of electronic books. A key requirement is immutability: finalized postings may no longer be deleted or changed unnoticed; corrections are made exclusively via logged reversal entries. An audit-compliant ERP system ensures this through an immutable journal, gapless number ranges and an audit trail.
Distinction: FiBu vs. cost accounting and inventory management
Financial accounting is often confused with other parts of accounting. The essential difference from internal cost and management accounting lies in the objective: the FiBu is externally oriented, legally regulated and reference-date-based; cost accounting serves internal control, is freely designable and works with cost centres and cost objects. Both draw on the same underlying data but process it differently.
Financial accounting must also be distinguished from inventory management: inventory management represents quantity and stock movements, financial accounting their value-based impact on accounts. And while financial accounting documents the past, preparatory accounting or controlling looks ahead. It is also important to distinguish the FiBu from fixed-asset accounting and payroll accounting, which are run as independent subsidiary areas but transfer their results into financial accounting.
Example
Example: mid-sized online retailer with ERP and tax advisor
A trading company sells via a shop and marketplaces and processes orders entirely in the ERP system. As soon as an outgoing invoice is created, a journal entry „Receivables to sales revenue and VAT“ is generated automatically in the accounts-receivable subsidiary ledger. On incoming payment, the system clears the open item and posts „Bank to Receivables“. Suppliers’ incoming invoices run analogously through accounts payable.
At the end of the month, the ERP exports the journal entries together with document images via the DATEV interface to the tax firm, which uses them to prepare the advance VAT return and the BWA. This way the company itself only handles the preparatory financial accounting, while the tax advisor is responsible for the closing – the data basis stays continuous and GoBD-compliant.
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