Liabilities and equity in Switzerland: understanding your balance sheet
A Swiss balance sheet shows both liabilities and equity as sources of financing. Knowing the difference helps you understand funding and payment deadlines. Explore the main categories, common errors and a worked example.
By Sarah Prieur · Swiss certified accountant
Liabilities and equity: the essentials
The financing side of a Swiss balance sheet explains how the business’s assets are funded. It comprises liabilities and equity. In a French-language balance sheet, these two groups together are called the passif.
- Current liabilities are obligations expected to fall due in the near term.
- Non-current liabilities generally provide funding over a longer period.
- Equity includes capital and profits retained in the business.
- Provisions and accruals recognise obligations that do not always take the form of an invoice already received.
Describing this entire side of the balance sheet as “everything the company must repay” is inaccurate. Equity does not have the same legal nature or repayment rights as a bank loan.
What should be recognised as a liability?
Article 959 of the Swiss Code of Obligations sets the recognition conditions. A liability arises from a past event, is expected to result in an outflow of economic benefits and can be estimated with sufficient reliability.
Goods received but not yet paid for create a trade payable. Salary earned by an employee but still unpaid also creates an obligation. By contrast, a proposed equipment purchase that can still be freely cancelled does not automatically become a liability.
Liabilities differ from accounting assets, which represent the business’s resources. A customer invoice is an asset; a supplier invoice is a liability. Classification depends on your company’s side of the transaction.
A liability is not necessarily a problem. It may finance machinery, support purchasing or arise from normal payment terms. Examine its cost, due date and the company’s ability to settle it.
Current liabilities, non-current liabilities and equity
Liabilities expected to fall due within twelve months of the balance sheet date or within the normal operating cycle are current. Other liabilities are non-current. A single loan may therefore be split between the two categories.
| Group | Examples | What it tells the business owner |
|---|---|---|
| Current liabilities | Suppliers, VAT payable, social insurance liabilities, near-term loan repayments | Payments to anticipate |
| Non-current liabilities | Long-term loan balances, certain provisions | Funding and risks extending over several years |
| Equity | Capital, reserves, retained earnings and the current year’s result | The residual interest after deducting liabilities |
For a CHF 80,000 loan with CHF 20,000 repayable over the next twelve months, CHF 20,000 is classified as current and the remaining CHF 60,000 as non-current, subject to the contractual terms.
A loan from an owner to their Swiss LLC generally remains a liability. It does not become share capital merely because the lender owns the company. Balances with owners must be disclosed separately in the balance sheet or notes as required by the applicable rules.
Accruals, provisions and trade payables: what is the difference?
All three can concern amounts to be paid, but they serve different accounting purposes.
| Situation | Illustrative treatment |
|---|---|
| An equipment invoice received but unpaid | Trade payable |
| Electricity consumed in December, invoiced in January | Accrued expense |
| Payment received for a service to be provided next year | Deferred income, allocated to the appropriate period |
| A dispute relating to a past event, with a probable and estimable outflow | A provision to assess based on the facts |
Accruals and deferred income, called passifs transitoires or passifs de régularisation in French, mainly allocate expenses and income to the correct period. They are not synonyms for deferred tax.
A provision is an accounting estimate. Recognising a CHF 15,000 provision for a risk does not move CHF 15,000 into a separate bank account. Cash must be arranged independently if a future payment is expected.
The distinction between a provision and a contingent liability depends in particular on the probability of an outflow and whether it can be estimated reliably. Some commitments are explained in the notes to the annual accounts instead of being recognised as a balance sheet liability.
Worked example for a Swiss company
A Swiss LLC has total assets of CHF 180,000. Before the allocation of its annual profit, its financing is as follows:
| Liability or equity item | Amount |
|---|---|
| Trade payables | CHF 28,000 |
| Tax and social insurance liabilities | CHF 12,000 |
| Accruals and deferred income | CHF 5,000 |
| Current portion of loan | CHF 15,000 |
| Total current liabilities | CHF 60,000 |
| Non-current portion of loan | CHF 40,000 |
| Total liabilities | CHF 100,000 |
| Share capital | CHF 20,000 |
| Profit reserves | CHF 10,000 |
| Profit brought forward | CHF 20,000 |
| Profit for the year | CHF 30,000 |
| Total equity | CHF 80,000 |
| Total liabilities and equity | CHF 180,000 |
The CHF 180,000 of assets is financed by CHF 100,000 of liabilities and CHF 80,000 of equity. A practical priority is to match the CHF 60,000 of current obligations against expected receipts and payment dates.
The balance sheet shows this financing structure. A cash forecast then helps check whether payments can be made when due.
How should you check liabilities before year-end closing?
The first risk is omission. A bank statement may confirm bank borrowing, but it cannot reveal every expense incurred before the year-end.
To prepare for annual closing, gather invoices received after the year-end, social insurance statements, loan agreements and correspondence about disputes. Check the period to which each amount relates.
Next, review tax liabilities. Instalments paid are not necessarily equal to the final tax expense for the year. VAT, social insurance and direct taxes should be kept separate and reconciled to their statements.
Finally, investigate unusual balances. A supplier account with a debit balance may represent an advance or a duplicate payment. A poorly documented owner’s account may mix loans, reimbursable expenses and private spending. Seek an explanation instead of offsetting amounts for convenience.
Which warning signs need prompt attention?
Invoices consistently paid late, growing social insurance liabilities or a loan reaching maturity without replacement funding all require a practical review.
Working capital analysis helps explain the funding structure. Combine it with a forecast of receipts and payments. A business can have positive equity and still face a short-term cash shortage.
If losses substantially erode equity, legal monitoring and intervention duties also need attention. Our article on capital loss and over-indebtedness in Switzerland addresses those specific situations.
Frequently asked questions
Why is equity shown alongside liabilities?
That side of the balance sheet explains the sources of funding. Equity finances the business alongside liabilities, but its legal and economic nature is different.
Does repaying a loan reduce profit?
Repayment of principal reduces the liability and cash. It is not an expense. Interest is accounted for separately in the income statement.
Does a provision mean money has been set aside?
No. It is an accounting item. Recognising a provision does not automatically reserve cash for the future payment.
Are accruals and deferred income always non-current?
No. They often relate to expenses for the current year that will be paid soon, or income received in advance. Classification depends on their nature and timing.
Can a balance sheet show negative equity?
Yes, if losses have exhausted equity. Assets still equal liabilities plus equity, but the situation calls for a prompt assessment of legal duties and necessary action.
Sources
- Swiss Code of Obligations, Articles 959, 959a, 959c and 960e: liability recognition, presentation, related parties, provisions and contingent liabilities. The English translation is informative; the official-language texts are authoritative.
- SECO: preparing and reading a balance sheet (in French): debt and equity funding.
Illustrative example: CHF 100,000 of liabilities and CHF 80,000 of equity finance CHF 180,000 of assets.
