Sole proprietorship bookkeeping: when simple accounts are enough and when you need a balance sheet

Who must keep accounts and who must register

Two thresholds are often confused. One concerns bookkeeping, the other entry in the commercial register. The commercial register is the public directory of businesses.

For registration, the rule is this: a natural person who operates a business that achieved revenues of at least CHF 100'000 in the most recent financial year must have their sole proprietorship entered in the commercial register at the place of foundation. Members of the liberal professions and farmers are exempt if they do not operate a commercial business.[1]

If one person owns several sole proprietorships, their revenue is added together.[3] If you are not required to register, you are entitled to be registered.[1]

The duty to keep full accounts has its own threshold. It is CHF 500'000. You can find an overview of all duties on the page Bookkeeping for the sole proprietorship.

The CHF 500'000 revenue threshold

Sales revenue is what you take in from your sales and services. Sole proprietorships and partnerships that achieved sales revenue of at least CHF 500'000 in the last financial year are subject to the duty to keep accounts and file financial reports. Sole proprietorships and partnerships with less than CHF 500'000 in sales revenue in the last financial year need only keep accounts on income and expenditure and on their asset position.[1]

This threshold does not apply to companies with their own legal personality. Legal entities are always subject to the full duty.[1] What this means for a GmbH (limited liability company) is explained on the page Bookkeeping for your GmbH.

Simple accounts: income, expenditure and assets

In Switzerland, simple accounts are known as the “Milchbüechli”, or “Milchbuchrechnung”.[4] They cover three things:

• Income: the money that flows into the business.
• Expenditure: the money that flows out of the business.
• Asset position: what your business owns and what it owes.

Simple does not mean informal. Recognised accounting principles apply mutatis mutandis to these undertakings. The law names the complete, truthful and systematic recording of transactions and circumstances, documentary proof for individual accounting procedures, clarity, fitness for purpose given the form and size of the undertaking, and verifiability.[1]

What is a voucher? An accounting voucher is any written record on paper or in electronic or comparable form that is required to be able to verify the business transaction or the circumstances behind an accounting entry.[1]

The tax authorities also want to see figures. Form 15a is based on the Federal Act on Direct Federal Taxation (DBG). Under it, self-employed persons with simplified accounts must complete the questionnaire in full and submit signed statements of assets and liabilities, income and expenditure, and private withdrawals and private contributions.[5] Assets are your business property, liabilities are your debts and your equity. Private withdrawals are money or goods you take from the business for private use. You submit the signed form with your tax return.[5]

Double-entry bookkeeping with balance sheet and profit and loss account

With the full duty, the requirements rise. The accounts record the transactions and circumstances that are required to present the asset, financing and earnings position of the undertaking.[1]

Anyone required to keep accounts must keep a general ledger and, depending on the nature and scope of the business, subsidiary ledgers as well. The general ledger consists of the accounts and the journal, the chronological record of all booked transactions. Subsidiary ledgers include in particular payroll accounting and accounts receivable and accounts payable ledgers.[2] Receivables are outstanding claims against customers, payables are outstanding invoices from suppliers.

In practice, this means double-entry bookkeeping. Double-entry means that each entry moves two accounts, one debited and one credited, by the same amount.

At the end of the year comes the annual report. It contains the annual accounts, comprising the balance sheet, the profit and loss account and the notes to the accounts.[1] The balance sheet shows assets and liabilities on a given date. The profit and loss account shows the year’s expenses and income. The notes supplement both with further information.

The annual report must be prepared and submitted for approval within six months of the end of the financial year. Financial reporting must, among other things, be clear and understandable, complete, reliable and prudent. Assets and liabilities and income and expenditure may not be offset against each other. You prove the amounts entered for the individual balance sheet items by an inventory or by some other method.[1]

You keep your books in francs or in the currency required for your business, in an official Swiss language or in English. Accounting may be carried out in writing or electronically.

Retaining your records

The accounting records and the accounting vouchers, together with the annual report and the audit report, must be retained for ten years. The retention period begins on expiry of the financial year.[1] The audit report is the report of an auditor who examines the annual accounts.

You may retain books and vouchers on paper or electronically, provided that correspondence with the underlying business transactions is guaranteed and you can make them readable again at any time. The annual report and the audit report must be retained in written form and signed.[1]

Tax law also requires ten years. Documents and other vouchers connected with self-employed activity must be retained for 10 years.[5] Subject to special provisions, you need only retain business correspondence if it has the function of an accounting voucher.[4]

Switching as your revenue grows

The law refers to sales revenue in the last financial year.[1] If your business grows, you therefore check the threshold afresh every year.

You may also do more while below the threshold. A sole proprietorship with less than CHF 500'000 in revenue must keep at least accounts covering only income, expenditure and the asset position.[3] Simple accounts are therefore the minimum.