4.1 Cost planning and cost accounting

Cost and performance accounting is part of business accounting, which provides information on the assets, earnings and liquidity situation of the company.

Accounting

Accounts shall be kept of all operational data. The bookkeeping is a period accounting. It refers to the business year and records all income and expenditure.

Practitioners say: If you have your bookkeeping under control, you also have your business under control. Problems in the company and "sloppy" bookkeeping often go hand in hand. Proper bookkeeping provides information about the earnings situation and the financial situation of a company.

• All merchants and companies that operate a "commercial business" (Commercial Code HGB) are obliged to keep accounts. Non-merchants are also obliged to keep accounts if the company exceeds certain turnover figures. Corporations, such as the GmbH, are obliged to keep accounts and balance sheets. Double-entry bookkeeping is mandatory for them. Each transaction is recorded in an account and a contra account with a debit and credit side (account "salary" via account "bank").
• Non-traders" and "freelancers" are not obliged to keep accounts. They must prepare an income statement (simple bookkeeping). In all cases, the principles of proper accounting (GoB) apply. Everything must be documented. Receipts must be: complete, timely, correct, clearly arranged and properly recorded. No booking without an original receipt. 

Operating expenses

Knowledge of the classification of business expenses is of general importance for the preparation of a business plan. The following definitions should help to name the costs correctly. 

In commercial language, expenses, expenditures and costs are distinguished.

• Expenses include all cash outflows, e.g. payment of salaries, rent, etc.; operating expenses that are not expenses are, for example, depreciation or invoices that have not yet been paid.
• Expenses include the total use of goods for the services. They are divided into earmarked expenses and non-operating expenses. Earmarked expenses concern direct operating expenses such as rents, salaries, material costs, etc.; neutral expenses are, for example, non-operating expenses for donations.
• Costs include the use of goods for the production of goods and services, measured in money. Basic costs are, for example, material costs, wage costs, advertising costs; additional costs that are not matched by expenses are, for example, entrepreneurial wages, interest on equity capital.

All expenses that the company has to incur in order to be able to operate the business are summed up under operating expenses. 

Imputed operating expenses

When planning operating expenses, a distinction must be made between imputed costs. Calculating them in a cost estimate, for example, are not recognised as operating expenses for tax purposes, however.

• Imputed costs are costs that are not matched by expenses. For tax purposes, for example, the repayment of loans, the personal private withdrawal (imputed entrepreneurial wage) or the rent for owner-occupied housing do not count as costs of the business.
• Imputed entrepreneurial income is defined for freelancers as private withdrawal for personal living expenses.
• Imputed interest for equity capital: It is intended to include a remuneration for the capital input by the entrepreneur or the shareholders in the cost accounting. Usual interest rates can be calculated.
• Imputed rent, e.g. when using an office in one's own home.

Direct and indirect costs

The question of the allocation of costs to the provision of services must be answered. Can the costs be directly assigned to an individual service or are they general, indirect costs that arise for the entire company without being (directly) assignable to an individual service?

• Direct costs can be directly attributed to the individual service or unit of service, e.g. production material, wages, material costs, fees....
• Indirect costs are also defined as overhead costs. They can be distributed to the cost centres of the respective activity unit with the help of a distribution key (e.g. operational accounting sheet). The costs can only be indirectly allocated to an individual service, e.g. salaries, depreciation (AfA), room costs, insurances...

Fixed costs , Variable costs

Fixed and variable costs differ in relation to the total costs of service provision. Costs are allocated according to the ratio of fixed to variable total costs. 

• Constant, fixed costs arise regardless of the level of employment or utilisation, e.g. rent for business premises, interest, accounting staff, insurance....
• Variable, variable costs arise when the level of employment or utilisation increases or decreases; e.g. consumables related to the individual customer, customer frequency in a restaurant when eating and drinking...