In this article
Key takeaways
- An invoice and its payment are separate events.
- Profit, bank balance and open invoices answer different questions.
- Each entry needs a traceable business reason and supporting evidence.
- Monthly checks should connect the ledger to the underlying records.
Build one month from five events
This teaching example uses accrual accounting. All figures exclude VAT; depreciation, tax and other events are omitted. The business starts with €10,000 in the bank, financed entirely by equity. There are no opening customer or supplier balances.
During the month:
| Event | What changes in the books |
|---|---|
| Services delivered and invoiced: €3,600 | Revenue and customer receivables increase by €3,600 |
| Customers pay €2,400 | Bank increases; customer receivables decrease |
| Services received and invoiced: €1,200 | Expense and supplier payables increase by €1,200 |
| Suppliers are paid €900 | Supplier payables and bank decrease |
| Month end | Remaining customer and supplier balances are reconciled |
The bank payments settle invoices that are already recorded. Recording those payments as fresh revenue or expense would count the same business activity twice.
Read the three results together
Profit is €2,400: €3,600 revenue less €1,200 expense.
The bank contains €11,500: €10,000 opening balance plus €2,400 receipts less €900 payments.
Open items explain what remains: customers owe €1,200; the business owes suppliers €300.
The closing position also balances. Assets are €11,500 bank plus €1,200 receivables, totalling €12,700. They are financed by €300 supplier liabilities and €12,400 equity: the original €10,000 plus the €2,400 profit.
These are simplified management figures, not a complete statutory financial statement. They nevertheless show why a profitable month can produce a different cash movement. Here, profit is €2,400 while the bank increases by €1,500; €900 of the difference is tied up in the net change in receivables and payables.
Follow one entry back to its source
Take a €600 customer invoice within the €3,600 revenue total. The original invoice identifies the customer, service, amount and reference. The bookkeeping records a €600 receivable and €600 revenue in the example.
When the customer pays €600, the bank entry reduces that receivable. The link between invoice and payment explains why the customer no longer owes it. The bank receipt alone would not establish what service was sold or whether that sale had already been recorded.
The same chain helps with corrections. If the invoice is later reduced, the correction must affect the recorded sale and the amount still due. See credit notes and refunds.
Use different reports for different decisions
| Client question | Useful record | What to inspect |
|---|---|---|
| “Did we earn money?” | Profit and loss statement or BWA | Revenue, expenses and missing period adjustments |
| “Can we pay next week?” | Bank position and short-term cash forecast | Available cash, expected receipts and due payments |
| “Who still owes us?” | Customer open-item list | Invoice, due date, payments and disputes |
| “Why is this amount here?” | Ledger account and source document | Entry, evidence and settlement |
A BWA based on unfinished records may omit depreciation, stock movements or period adjustments. Discuss what has been included before using it to judge performance.
The accounting method also matters. An EÜR follows different recognition rules from accrual accounts. Do not apply this invoice-based example unchanged to every sole trader; EÜR and balance-sheet accounting explains the distinction.
What makes the month dependable
A useful month-end check asks whether the bank agrees with its statement, open invoices agree with the relevant balances, and material business activity is represented by the right evidence and period. A ledger that adds up can still omit an invoice or contain a duplicate.
Hans connects documents, postings, payments and review findings through to monthly close. The client supplies access and business facts; the firm can assess the resulting records and take the professional actions covered by its engagement.
For the next client conversation, use the worked bridge between profit and cash.
Sources
Sources were checked on 06 October 2026. This article provides orientation and is not tax, legal, or accounting advice.
- German Commercial Code section 238 – bookkeeping duty
- German Commercial Code section 242 – balance sheet and profit and loss account
- German Income Tax Act section 4 – profit and cash-basis accounting
- Published