What happens when expenses exceed income

Basic concepts: income and expenses

Income and expenditure are two terms from business administration. Many people lump them together with other terms and use them synonymously, even though they actually mean something else. Income, income, income, expenses, expenses and the like cause confusion. We explain the terms so that you can communicate more easily with your tax or business consultant and also better understand business evaluations, profit calculations, balance sheets and tax assessments.


revenue provide a Increase in financial wealth The financial assets are the stock of means of payment, such as cash in the till, sight deposits on the current account or bank balances, i.e. money that you can dispose of at short notice. In addition, it also includes short-term money claims minus the short-term liabilities to be serviced.

Operating income consists of all incoming payments or additions to short-term receivables and disposals of short-term liabilities.

Examples of income:

  • Revenue from the sale of goods or services provided

  • Commission income

  • Interest income

  • Insurance compensation payments

  • Sales proceeds from the sale of company property

  • Sales tax that you have collected

A practical example: The paint shop Culzoni sells paints for house renovations to the Schuster family on account. It is an intake. The invoice created represents an asset-increasing claim.


expenditure are in your company all payouts, all additions to short-term liabilities and disposals of short-term receivables. Issues are actual outflows of funds less the disposal of short-term receivables and plus the increase in short-term liabilities.

Examples of expenses

  • Personnel costs

  • Rent for office or commercial space

  • Cost of purchasing goods

  • Acquired Services

  • Administration, vehicle, advertising or travel expenses

A practical example: Master painter Bauer & Söhne buys new brushes from wholesalers in cash. There is a direct payout to pay the bill. These are expenses.

Further terms

Income and expenses run in companies under different names and types, which also come about in different ways.

Income are income that you generate when you sell something to third parties, produce for third parties or when you provide a service for third parties.

Services relate to your actual business activity as a company that you bill your customers. Services and income together form the company's revenue. This can be sales, warehouse services, own consumption or active own work.

expenditure is the total money consumption in a billing period for goods or services. Expenses are all expenses that are necessary in connection with the creation of products or services.

costs is the consumption of funds in the form of production factors that are necessary for the creation of services or the production of products.

Business expenses

The operating expenses are Expenses incurred by the company. This is regulated in Section 4 of the Income Tax Act (EStG). From your point of view as an entrepreneur, business expenses are an important item in your tax return. you reduce the profit and with it the tax burden. Business expenses can be direct monetary outflows. However, they can also be material assets. For the tax office to recognize the expenses as business expenses, they must be related to the economic activities of your company. These expenses can also arise before the start of business activity or after the eventual termination. Businesses can claim business expenses, as can agricultural and forestry businesses or self-employed persons.

Carefully delineate business expenses

Most of the time it's clear when operational expenses such as wage and salary costs for employees, premiums for operational insurance or repair costs for company vehicles or machines. Acquisition and production costs for assets are also classic operating expenses. The costs in connection with assets must be dealt with in accordance with the relevant tax regulations. This means that these costs are to be distributed over the prescribed useful life of the asset, i.e. written off.

Advertising expenses

Even non-entrepreneurs can Expenses that they incur in connection with their professional activityto claim for tax purposes. These are then the so-called advertising costs. If advertising costs arise not only in connection with one type of income, the tax office distinguishes between deductible and non-deductible advertising costs.

You may deduct income-related expenses in your tax return for the following income:

  • Income from non-self-employment

  • Rental and leasing income

  • Pensions

Employees who cannot provide evidence of work-related costs can include a flat-rate income allowance in their tax return. Even if you do not reach this flat rate with your receipts, you can claim the flat rate for advertising expenses instead of the actual expenses.

Demarcation from the private area

In some areas in the company mix business and private concerns. This is the case, for example, when using a company car, if you also drive the car for private purposes or if you combine business and private interests during a trip. In order to be able to deduct these costs for tax purposes, it is necessary to to precisely highlight the operationally induced costs. There are also costs that are not 100 percent tax deductible, such as customer gifts or the cost of a business lunch.

Determination of profit based on operating expenses

For determining your profit Business expenses are very important. Many companies determine this with the income-surplus-calculation (EÜR), often also called the income-expenditure calculation. In this process, the Operating income and operating expenses compared and formed the difference. The positive result is the profit for the accounting period, which can be a quarter or the financial year. So that you get a correct result in the end, you are only allowed to include real operating expenses in the EÜR.

Records required for the EÜR

Certain records are required so that you, as an entrepreneur or self-employed person, can create an income-expenditure account. You need to List all operating income and expenses. You need one for this Cash book and a Incoming goods book and also a Attachment directory. If you have employees, so must you Wage accounts Keep and records for sales tax purposes are necessary. As a rule, the income and expenditure account is sufficient for this and you have all the necessary information ready.

The attachment directory

The Attachment directory is a Proof of annual depreciation. This includes all assets that wear out over time, such as production facilities, office equipment or computer systems. The list of attachments must contain the following information:

  • Designation of the individual assets

  • Suppliers of the capital goods with name and address

  • Acquisition date

  • Cost of acquisition or manufacture

  • Annual amount for the deduction for wear and tear (depreciation)

  • Estimated useful life

  • Residual book value at the end of the financial year

If an asset has already been completely written off, but you continue to use it, it remains in the asset register with a Memorable noted. This can be, for example, the symbolic amount of one cent.

Income-expenditure accounting - not for all companies

An income-expenditure account is the simplest form of bookkeeping. All companies and self-employed people who do not have to do double-entry bookkeeping can use it to determine their profit and prepare the annual financial statements. This regulation applies in particular to freelancers. Sole proprietorships are also allowed to use them under certain conditions.

Sole traders who are registered in the commercial register may use the EÜR, provided that their turnover does not exceed EUR 500,000 in two consecutive financial years and the profit does not exceed EUR 50,000. As soon as you exceed one of the two limits, you are obliged to report. Corporations must always draw up a balance sheet. If your company is not registered in the commercial register, you can carry out the simplified annual financial statements like a freelancer under the conditions.

Objective of the income and expenditure account

Both forms, i.e. both the revenue surplus account and double-entry bookkeeping, actually have the same goal: Determination of the amount of profit or loss. The main difference is the type of recording and the technology.

With double-entry bookkeeping there is Chart of accounts and accounts. The statement of the income and expenditure takes place in the form of Business transactions. You need to collect all receipts and monthly the Pay sales tax.

For the income and expense account, you create one Sum of operating income and a sum of operating expensesthat are subtracted from each other at the end. If you had more income than expenses, you made a profit. If your expenses were higher, you made a loss. You should keep a cash book as the basis for the receipts. Bank receipts are also important.

Tip: With the changes in the law for 2018, companies no longer have to submit all receipts. This should be a major relief for many, especially smaller companies. If necessary, the tax office can request the documents. You can of course continue to submit all receipts voluntarily. This can be advisable if unusually high, deductible costs have been incurred. In this case, a request from the tax office is very likely. If you include the receipts in this case, this will speed up the process.