Accruals vs provisions in Switzerland: differences and examples

What is the difference between accruals and provisions?

In this comparison, an accrual means an accrued expense: a liability for goods or services already received but not yet invoiced or fully quantified. You recognise the relevant cost without waiting for the final bill. What remains is often a billing, calculation or administrative step.

A provision deals with a more uncertain obligation or risk. For a legal claim, for example, management may need advice about whether the company is likely to pay, how much a settlement could cost and when it might happen. It is not simply waiting for a routine invoice.

“Known amount versus estimated amount” is therefore an unreliable shortcut. Accruals can be estimated too. Nor is the distinction simply short-term versus long-term: a provision may be settled within months.

This distinction is reflected in IAS 37, paragraph 11, which is a useful reference for English accounting terminology. The Swiss CO rules and the limits of applying IFRS concepts to Swiss statutory accounts are explained below.

Accruals are not the same as accrual accounting

Accrual accounting is the broader approach of recognising income and expenses in the relevant period rather than only when money changes hands. An expense accrual is one application of that approach. Accrued income is different: it concerns revenue earned but not yet billed, and normally appears on the asset side.

Other balances that should not be confused with provisions

A supplier invoice already received and recorded normally creates accounts payable, also called trade payables. Insurance paid in December for cover starting in January is a prepayment, normally an asset until the cover is consumed. A “bad-debt provision” usually means an allowance against receivables: it reduces an asset rather than creating a separate liability.

In French-speaking Swiss accounts, you may see charges à payer or passifs transitoires for accrued expenses. The latter heading can also contain other deferrals, so inspect the underlying balances. Our explanation of liabilities and equity in a Swiss balance sheet helps place these items in context.

Accrual example: a December service invoiced in January

A consultancy receives subcontracting services in December. At 31 December, the invoice is missing, but approved hours and the agreed rate support a cost of CHF 5,000. The company uses accrual accounting and records an expense accrual so that December’s profit includes the work already received.

In January, the supplier invoices the same CHF 5,000. The company clears the accrual into accounts payable, then pays the invoice. The following example excludes VAT to keep the accounting sequence clear.

December’s profit falls by CHF 5,000. Recording the invoice in January moves the liability between two accounts; it does not create another CHF 5,000 expense. Cash falls only when the supplier is paid. For the mechanics behind these entries, see our explanation of debits, credits and journal entries.

What if the invoice is different from the estimate?

Suppose the January invoice is CHF 5,200 instead. If it arrives before the annual accounts are finalised and confirms the cost of the December work, use that evidence to update the year-end accrual. Do not automatically treat the CHF 200 difference as a new-year expense. For IFRS reporting, the distinction between evidence about year-end conditions and genuinely new events is set out in IAS 10. If the accounts have already been finalised, assess whether the difference is a change in estimate or an error and apply the relevant reporting rules.

Do you have to reverse the accrual on 1 January?

No. The table shows direct clearing. An alternative is an automatic reversal: debit accrued expenses and credit the expense account by CHF 5,000, then record the January invoice through the expense account as usual. If the invoice also totals CHF 5,000, the two January expense entries cancel out. Use one method consistently; do not both reverse and directly clear the same accrual.

Provision example: an uncertain legal settlement

Now consider a claim arising from a delivery made before year-end. The company is not waiting for an agreed supplier bill. It must assess an uncertain legal exposure. Under Article 960e(2) CO, past events that are expected to cause a loss of economic benefits in future years require a provision for the amount likely to be needed.

At 31 December, the company’s documented assessment supports a provision of CHF 12,000. The following year, a settlement fixes the compensation at CHF 9,000, which it pays. It chooses to release the unused CHF 3,000 balance. These entries exclude specific tax and VAT effects.

The first entry reduces profit by CHF 12,000 without moving cash. The later payment uses the provision, while the release increases profit by CHF 3,000. Across both years, the net expense is CHF 9,000. Recording the settlement as a new expense while leaving the provision untouched would count the same cost twice.

The account names depend on your Swiss chart of accounts. A compensation payment, repair invoice and legal fee can also have different VAT consequences; an accounting label does not decide the VAT treatment.

How do you support the estimate?

For a legal claim, document the underlying event, legal advice, possible outcomes and the reason for the amount chosen. For many similar warranty obligations, use relevant claims history, adjusted for known product defects and current circumstances.

For example, if supported experience suggests that remaining warranty work will cost 3% of the relevant CHF 300,000 of sales, the calculation is CHF 300,000 × 3% = CHF 9,000. The rate is an assumption for this example, not a statutory allowance or an automatic tax deduction. Exclude work already paid or otherwise recorded so that it is not included twice.

If the recognition criteria are not met, consider the disclosure requirements instead of inserting an arbitrary amount. Where notes are required, Article 959c(2)(10) CO addresses legal or constructive obligations for which an outflow appears unlikely or cannot be estimated reliably enough. Our article on notes to annual accounts explains these contingent liabilities.

Swiss CO and IFRS: which rules are you applying?

This article’s worked examples assume annual accounts prepared on an accrual basis. Article 958b CO sets out the period allocation and matching principles. Simplified bookkeeping and statutory exceptions to that basis require a separate assessment.

For provisions, Swiss statutory rules are broader than the familiar IAS 37 model. Article 960e(3) CO also permits provisions for recurring warranty costs, restoration of property, plant and equipment, restructuring and measures supporting the business’s long-term prosperity. These are separate from an ordinary accrual for services already received.

A Swiss CO provision is not automatically an acceptable IFRS provision. Under IAS 37, recognition requires a present obligation from a past event, a probable outflow and a reliable estimate. A general plan to spend money or strengthen the business does not by itself satisfy those conditions.

The difference also matters when a risk disappears. Article 960e(4) CO allows provisions that are no longer justified to remain in statutory accounts. IAS 37 requires reversal when an outflow is no longer probable. If your Swiss company also submits an IFRS reporting package to a group, review the balance for that framework instead of copying it unchanged.

Keeping an unnecessary provision in Swiss statutory accounts can create a hidden reserve. It does not preserve its tax deductibility, as the next section explains.

Are accruals and provisions tax-deductible in Switzerland?

The label does not decide the deduction. For an expense accrual, you need evidence that the underlying business cost belongs to the relevant tax period. Renaming a budgeted future cost an “accrual” does not make it deductible.

For an SA or Sàrl, Article 63 of the Federal Direct Tax Act (FDTA; LIFD in French) governs deductible provisions. It covers, in particular, obligations incurred during the year whose amount remains uncertain, risks of losses on current assets and other risks of imminent losses during the year. For self-employed individuals, the corresponding federal rule is Article 29.

In Geneva, Articles 12 and 16B LIPM govern the relevant corporate tax adjustments and provisions. A provision that is not commercially justified is added back when calculating taxable profit. An entry in the accounts, by itself, is not sufficient evidence.

A specific federal rule permits provisions for certain future research and development contracts awarded to third parties, up to 10% of taxable profit and an overall CHF 1 million cap under Article 63(1)(d) FDTA. This narrow rule should not be extended to ordinary future expenses or vaguely defined internal projects.

When a provision is no longer justified, Article 63(2) FDTA and Article 16B(2) LIPM require a tax add-back even if the amount remains in Swiss statutory accounts. Keep a reconciliation of the accounting balance, tax-accepted balance and amounts previously taxed.

If a provision was already disallowed when it was created, reconcile its later accounting release with that history so that the same amount is not taxed twice. Our article on hidden reserves in Swiss accounting explains the connection between statutory accounts and tax values.

A practical year-end review: what to check and keep

Start with two separate schedules: unrecorded costs already incurred and uncertain obligations or risks. This makes the evidence you need much clearer than using a single list labelled “provisions”.

1. Check the period. For an accrual, record when the work was performed or the service consumed. For a provision, identify the past event giving rise to the risk.
2. Explain the amount. Keep the contract, service calculation or subsequent invoice for an accrual; retain the risk assessment and estimation method for a provision.
3. Prevent duplicates. Check that the same amount is not already in accounts payable, another accrual, a provision or an invoice posted after year-end.
4. Explain the movement. Reconcile opening balance + additions − amounts used − releases = closing balance. Investigate old items that have remained unchanged.
5. Track the next step. Record who expects the invoice or monitors the claim, how the balance will be cleared, and whether accounting and tax values differ.

Include this work in your year-end closing process. Information received after the balance sheet date may clarify conditions already present at year-end, so review it before the accounts are finalised.

Keep the calculation together with its evidence and approval. Follow the relevant accounting record retention requirements so that another person can understand the balance and its history later.

Further reading

• Liabilities and equity: understanding your Swiss balance sheet
• Hidden reserves in Switzerland: accounting and tax effects
• Year-end accounting in Switzerland: closing your books in five steps

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