Introduction to Swiss accounting
What is accounting?
Under Art. 957a CO, accounting forms the basis for preparing the financial statements. It records transactions — the flows arising from the company's economic operations — and the other facts required to present the company's assets, financial position and results.
Accounting is a decision-support tool, both for internal managers and for the external users interested in the company's financial position.
The stakeholders
The company's managers
Managers may have to make three types of decision:
External users
Suppliers, bankers, other creditors — interested in the company's solvency.
Shareholders, limited partners — interested in the return on invested capital and earning capacity.
Cantonal and federal — accounting serves as the basis for the tax return and the VAT statement.
Interested in profitability and financial stability in order to safeguard jobs.
The fields of accounting
Accounting is not limited to a single area. There are two main fields and several complementary fields.
Main fields
Records transactions with external partners. It establishes the asset position in the balance sheet and determines the result in the income statement.
Takes the elements of financial accounting in order to analyse them: calculating cost prices, determining results by business segment and by product.
Complementary fields
Studies the economic situation by comparing the company with others in the same sector using ratios.
Shows the amounts of cash received or paid out during a given financial year.
Makes it possible to draw up forecasts and compare them with actuals in order to improve how the company operates.
Accounting standardisation
To enable reliable exchanges between the company and the other economic players, accounting is based on rules and conventions: accounting standardisation.
Swiss accounting law (Art. 957 CO)
Swiss accounting law, spread over 29 articles, is set out in Article 957 et seq. of the Code of Obligations (CO). It applies to all companies, associations and foundations.
29 articles applicable to all forms of business: sole proprietorships, partnerships and legal entities.
Relief is provided for SMEs depending on their size.
Emerging with economic globalisation, they harmonise the rules on an international scale.
Apply mainly to large listed companies.
Scope — who is required?
The following must keep accounts in accordance with the CO (Art. 957):
Sole proprietorships and partnerships with turnover above CHF 500'000
Legal entities (SA, Sàrl, associations, foundations, etc.)
Relief is provided for SMEs — some benefit from simplified accounting
The inventory
All the assets owned by the company make up its net worth, or capital employed.
Taking an inventory means listing and valuing all of the company's assets, as well as its liabilities (borrowed capital).
Net asset value
Inventory example — D. Perroud company (as at 31.12.N)
| Description | Amount (CHF) | Total (CHF) |
|---|---|---|
| Assets (capital employed) | ||
| Cash on hand | 20'000 | |
| Latest PostFinance daily statement | 30'000 | |
| Unpaid customer invoices | 120'000 | |
| Raw materials inventory (steel, brass, silver) | 100'000 | |
| Finished goods inventory (milling machines, grinders) | 70'000 | |
| Various machines and equipment | 230'000 | |
| IT equipment | 20'000 | |
| Vehicles | 80'000 | |
| Tools | 10'000 | |
| Operating building | 800'000 | |
| Total assets | 1'480'000 | |
| – Liabilities (borrowed capital) | ||
| Unpaid supplier invoices | 140'000 | |
| Overdrawn current account at BCV | 130'000 | |
| VAT statement | 10'000 | |
| Mortgage loan from BCV | 500'000 | |
| Total liabilities | – 780'000 | |
| = Net assets (equity) | 700'000 | |
The balance sheet
The balance sheet is a table that summarises the information obtained from the inventory. By convention, the left-hand side is called Assets and the right-hand side Liabilities & Equity.
The assets side describes the composition of the capital employed. The liabilities side describes the origin of that capital. Since both describe the same net worth from two angles: ASSETS = LIABILITIES & EQUITY.
Classification of balance sheet items (Art. 959a CO)
Opening balance sheet, closing balance sheet and appropriation of the result
Accounting life is organised around the financial year, which generally coincides with the calendar year.
Financial position at the start of the year. ASSETS = LIABILITIES & EQUITY.
The financial position changes: purchases, receivables, payables, depreciation…
New financial position and result (profit or loss).
The opening balance sheet (as at 1.1.N+1)
| ASSETS | LIABILITIES & EQUITY | ||
| Cash | 20'000 | Suppliers | 140'000 |
| PostFinance | 30'000 | Bank | 130'000 |
| Customers | 120'000 | VAT statement | 10'000 |
| Raw materials | 100'000 | Mortgage | 500'000 |
| Finished goods | 70'000 | Opening capital | 700'000 |
| Machines and equipment | 230'000 | ||
| IT | 20'000 | ||
| Vehicles | 80'000 | ||
| Tools | 10'000 | ||
| Operating building | 800'000 | ||
| TOTAL ASSETS | 1'480'000 | TOTAL LIABILITIES & EQUITY | 1'480'000 |
In an opening balance sheet, ASSETS always equal LIABILITIES & EQUITY.
The closing balance sheet before appropriation of the result (as at 31.12.N+1)
| ASSETS | LIABILITIES & EQUITY | ||
| Cash | 40'000 | Suppliers | 195'000 |
| PostFinance | 80'000 | Bank | 180'000 |
| Customers | 170'000 | VAT statement | 5'000 |
| Raw materials | 120'000 | Mortgage | 490'000 |
| Finished goods | 150'000 | Opening capital | 700'000 |
| Machines and equipment | 200'000 | ||
| IT | 15'000 | ||
| Vehicles | 70'000 | ||
| Tools | 5'000 | ||
| Operating building | 800'000 | ||
| Profit | 80'000 | ||
| TOTAL ASSETS | 1'650'000 | TOTAL LIABILITIES & EQUITY + RESULT | 1'650'000 |
It is the result (profit or loss) that restores equality between ASSETS and LIABILITIES & EQUITY.
The closing balance sheet after appropriation of the profit
The profit retained in the company corresponds to a new capital contribution: 700'000 + 80'000 = 780'000.
| ASSETS | LIABILITIES & EQUITY | ||
| Cash | 40'000 | Suppliers | 195'000 |
| PostFinance | 80'000 | Bank | 180'000 |
| Customers | 170'000 | VAT statement | 5'000 |
| Raw materials | 120'000 | Mortgage | 490'000 |
| Finished goods | 150'000 | Final capital (700'000 + 80'000) | 780'000 |
| Machines and equipment | 200'000 | ||
| IT | 15'000 | ||
| Vehicles | 70'000 | ||
| Tools | 5'000 | ||
| Operating building | 800'000 | ||
| TOTAL ASSETS | 1'650'000 | TOTAL LIABILITIES & EQUITY | 1'650'000 |
In a closing balance sheet after appropriation of the result, ASSETS once again always equal LIABILITIES & EQUITY.
The minimum structure of the balance sheet
The balance sheet must contain, in the prescribed order, at least the following headings and items. Assets are classified by decreasing liquidity and liabilities by decreasing maturity.
| Assets | Liabilities & Equity |
|---|---|
Current assets
|
Short-term borrowed capital
|
Non-current assets
|
Long-term borrowed capital
|
Net current assets = Current assets − Short-term borrowed capital; then Equity = Net current assets + Non-current assets − Long-term borrowed capital.
Summary — The three golden rules to remember
ASSETS = LIABILITIES & EQUITY
Always perfectly balanced.
ASSETS − LIABILITIES = RESULT
The result restores the balance.
ASSETS = LIABILITIES & EQUITY
Balance restored through the final capital.
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