What is accounting? The basics for your Swiss business
Accounting turns your business transactions into information you can use to make decisions. Learn what it measures, which documents it produces and how Swiss requirements work, with a practical example showing the difference between sales, profit and cash.
By Sarah Prieur · Swiss certified accountant
Accounting: the essentials
Accounting means recording, organising and checking a business’s transactions. It shows what the business earns, what it owns, what it owes and how its financial position changes.
- Revenue measures sales; profit also takes expenses into account.
- Your bank balance shows the money available, but does not tell you whether the business is profitable.
- In Switzerland, accounting requirements depend in particular on the business’s legal form and size.
- Reliable accounts depend on supporting documents and regular checks.
What does business accounting cover?
Business activities leave a record: a customer invoice, a purchase, a loan agreement or a salary payment. Accounting brings these records together in a consistent system. It also captures events that do not immediately move money through the bank, such as an unpaid invoice or the depreciation of equipment.
Consider a business that buys a machine using a bank loan. The bank statement tells only part of the story. The business must also record the machine, the amount owed to the bank and the interest charged over time. Otherwise, the owner could mistake money borrowed for income earned.
Financial accounting provides an overall picture. It includes entering transactions, checking account balances and preparing annual financial statements. These accounts also form the basis for tax returns, subject to adjustments required by tax law.
How does an invoice become an accounting record?
The process starts with a supporting document. It explains the transaction and provides evidence that it took place. The accountant then identifies the accounts involved, the period in which the transaction belongs and, where relevant, its VAT treatment.
In double-entry bookkeeping, every transaction affects at least two accounts. Total debits must equal total credits. A single journal entry may contain several lines.
The Swiss chart of accounts provides the categories: bank, customers, suppliers, sales, rent and salaries, for example. The journal lists entries in the order they are recorded. The general ledger groups them by account.
The information is then checked. For example, the bank balance in the accounts is compared with the bank statement. Any difference needs an explanation: an unrecorded fee, a duplicate entry or a payment still in transit. These checks form part of the accounting cycle, from collecting documents to preparing the annual accounts.
Which documents help you understand the accounts?
Under Swiss law, annual financial statements generally comprise a balance sheet, an income statement and notes to the accounts. Certain businesses qualify for exemptions. A cash flow statement is an additional requirement for certain larger businesses; it is not compulsory for every SME.
| Document | Question it answers | Example of information |
|---|---|---|
| Balance sheet | What is the financial position on a particular date? | Customer receivables, bank loans and equity |
| Income statement | Did the business make a profit during the period? | Sales, staff costs and annual profit or loss |
| Notes to the accounts | What else do you need to interpret the figures? | Accounting policies, commitments and explanations of individual items |
| Cash flow monitoring | How is the available cash changing? | Expected receipts and upcoming payments |
The balance sheet presents assets and how they are financed. In French-language Swiss accounts, the heading passifs covers both liabilities and equity. It therefore means more than amounts owed to third parties; translating the whole heading as “liabilities” alone would be misleading.
The income statement covers a period. It compares income and expenses to calculate a profit or loss. When reading it, always check the dates and whether any closing adjustments are still missing.
Example: profit and cash tell different stories
Imagine a consulting company. To make the mechanics clear, all amounts exclude VAT and taxes are left out of this example. At the start of the month, the business has CHF 10,000 in its bank account.
| Transaction during the month | Effect on profit | Effect on bank balance |
|---|---|---|
| Services delivered and invoiced | +CHF 15,000 | — |
| Payments received for those invoices | — | +CHF 9,000 |
| Expenses for the month, paid | −CHF 6,000 | −CHF 6,000 |
| Repayment of loan principal | — | −CHF 2,000 |
| Total change | +CHF 9,000 | +CHF 1,000 |
Profit for the month is therefore CHF 9,000 before tax. The bank balance rises from CHF 10,000 to CHF 11,000. Customers still owe CHF 6,000, and the bank loan has fallen by CHF 2,000.
The company is profitable, but it has not received all of that profit in cash. Conversely, taking out a new loan would increase the bank balance without increasing profit. This is why the statements need to be read together and supplemented with a view of future payment dates. Our article on managing business cash flow explains how to turn that information into a practical forecast.
Financial, cost and management accounting: what is the difference?
In everyday use, general accounting and financial accounting often refer to recording transactions and preparing financial statements. They produce structured information about the business as a whole.
Cost accounting looks more closely at individual activities: how much does a project, customer, service or shop contribute? It allocates revenue and costs according to management’s needs. This level of analysis does not follow automatically from simply filing invoices.
Management accounting uses this information to compare actual results with budgets and support decisions. A business can be profitable overall while selling a service at a loss. Identifying the difference may involve comparing the fees earned on an assignment with the time spent and its direct costs.
Before adding reports, define the question you want to answer. To decide whether to raise a price, an analysis of the margin on each service is often more useful than a long list of account balances.
Who must keep accounts in Switzerland?
Swiss corporations (SA/AG) and limited liability companies (Sàrl/GmbH) must keep full accounts regardless of their revenue. Sole proprietorships and partnerships must also do so when revenue in the previous financial year reaches CHF 500,000.
Below that threshold, sole proprietorships and partnerships may keep simplified records of receipts, expenditure and financial position. This does not mean that they can ignore supporting documents, debts or the owner’s private contributions. Our article on Swiss accounting obligations explains the applicable requirements in more detail.
These rules must be distinguished from VAT registration and registration in the commercial register. The three obligations use different criteria. Your choice of software does not determine which legal accounting regime applies.
An SME’s accounts do not automatically have to be published online. Requirements to submit accounts to the relevant company bodies, rights of inspection and any publication obligations are separate matters.
How can you start with a simple system?
Begin with a process you can follow every week. Sophisticated software cannot compensate for missing documents or unclear responsibilities.
- Keep business and private transactions separate so that they are easy to identify.
- Collect sales invoices, purchase documents, contracts and bank statements in one place.
- Choose a filing system suited to your business and its obligations.
- Schedule regular checks of bank balances, customer receivables and supplier balances.
- Agree with your accountant which documents to provide and the timetable for closing the accounts.
Swiss accounting principles require information to be complete, clear and traceable. Accounting books and supporting documents must generally be retained for ten years from the end of the financial year, subject to specific rules requiring longer periods. Digital records must remain readable and retain their integrity. See our explanation of record retention and digital archiving before choosing your storage process.
Frequently asked questions
Are accounts the same as a bank statement?
No. A bank statement records movements of money. Accounting also tracks unpaid invoices, long-term assets, debts and closing adjustments. It explains what bank transactions represent and how they affect the business.
Is revenue the amount the business owner earns?
No. Revenue represents the business’s sales. Expenses must be deducted to determine profit. Taxes, financing needs and the legal structure must then be considered before working out the owner’s personal income.
Can I do my own bookkeeping?
Yes, provided you understand the applicable rules and have enough time. Tasks can also be shared: the owner prepares documents and monitors invoicing, while the accounting firm checks the accounts and handles more technical entries.
Does an inactive company still need accounts?
A Swiss LLC or corporation remains subject to its accounting obligations even if it makes no sales. There may still be expenses, receivables, debts or equity to report. Having no revenue does not create a general exemption.
Does accounting software guarantee accurate accounts?
Software helps with calculations and organisation, but the underlying decisions still matter. A misclassified purchase can produce an incorrect result in software that works perfectly. Human checks and reliable supporting documents remain necessary.
Sources
- Swiss Code of Obligations, Articles 957–958f and 961: bookkeeping obligations, annual financial statements and retention of records. The English translation is provided for information; the official-language texts are authoritative.
- SECO SME Portal: compulsory accounting: full and simplified accounting requirements.
- SECO SME Portal: electronic bookkeeping: retention periods and electronic records.
