In a Swiss balance sheet, the financing side includes both liabilities and equity. It explains how the resources shown as assets are financed: by creditors, owners or profits retained in the business. In French, this whole side is called le passif. In English, liabilities refers to obligations to creditors, while equity is presented separately.
At a glance
- The financing side of the balance sheet combines liabilities and equity.
- Liabilities are classified as current or non-current according to their maturity and the normal operating cycle.
- Accruals and deferred income include expenses payable and income received in advance.
- A provision does not automatically mean that money has been set aside in a bank account.
Liabilities and equity
Liabilities include obligations to suppliers, banks, public authorities and other creditors. Under Article 959 of the Swiss Code of Obligations, they arise from past events, are likely to lead to an outflow of resources and can be estimated reliably enough. Equity includes capital, reserves and retained earnings or the current year’s result, depending on the legal form.
The balance sheet equation is therefore: assets = liabilities + equity. In a French-language Swiss balance sheet, equity is already included in the total labelled passif, so it must not be added to that total again.
Our article on the Swiss balance sheet explains both sides. Here, the aim is to identify the different sources of financing and understand what they mean for your business.
Why is equity on the financing side?
The French word passif can make this half of the balance sheet sound like bad news. In fact, it shows where the financing comes from. A liability is an obligation to another party. Equity represents the portion financed by the owners and retained profits, after taking losses into account.
Suppose a business has assets of CHF 100,000 and liabilities of CHF 60,000. Its equity is CHF 40,000. This does not mean that CHF 40,000 is sitting in a bank account: those resources may be tied up in receivables, inventory or equipment recorded as assets.
This also explains why taking out a loan does not create a profit. Receiving CHF 20,000 increases the bank balance and the loan liability by the same amount. The business has more cash, but it has committed to repaying it.
Current and non-current liabilities
Current liabilities include obligations that are likely to fall due within twelve months of the balance sheet date or within the normal operating cycle. Other liabilities are classified as non-current.
Supplier invoices, certain social security or tax liabilities and upcoming loan instalments are generally current liabilities. The portion of a loan repayable several years later is non-current.
A single loan may therefore need to be split: the instalment due next year should not remain grouped with the balance payable much later. This classification helps you assess your cash needs.
What are accruals and deferred income?
The examples below assume accounts prepared by allocating expenses and income to the financial year to which they relate. Article 958b of the Code of Obligations provides an exception for activities meeting its conditions. These entries therefore do not automatically apply to cash-based records of receipts and payments.
Accruals and deferred income help allocate transactions to the correct period. A service received from a supplier in December but invoiced in January may require an accrued expense at the December year-end. If your business provided the service to a customer instead, you would consider recognising income and a receivable or accrued income.
Depending on its nature, a payment received before a service is delivered may be deferred income. The money is in the bank, but the income may not belong entirely to the financial year in which payment was received.
These items are not the same as deferred taxes, nor do they cover all current liabilities. Their purpose is to allocate expenses and income to the correct period.
Receiving or providing a service: two different treatments
A business receives a supplier’s service worth CHF 2,400 in December, with the invoice arriving in January. Ignoring VAT, it recognises an expense of CHF 2,400 and an accrued liability of CHF 2,400 at 31 December. When the invoice arrives, transferring the accrual to the supplier account avoids recognising the expense twice. Payment then clears the supplier balance against the bank account.
Conversely, if the business provided a service worth CHF 2,400 in December and will invoice it in January, it must consider recognising income and a receivable or accrued income, subject to the recognition conditions. This is not an accrued expense. Always identify which side of the transaction you are looking at.
The table below shows the corresponding debit and credit entries.
| Timing | Debit | Credit |
|---|---|---|
| 31 December: supplier’s service received | Expense: CHF 2,400 | Accrued liability: CHF 2,400 |
| January: transfer when the matching invoice arrives | Accrued liability: CHF 2,400 | Trade payable: CHF 2,400 |
| Payment | Trade payable: CHF 2,400 | Bank: CHF 2,400 |
This example assumes that the invoice exactly matches the estimated amount and that no reversal entry has already been posted. If your software automatically reverses the accrual, adapt the entries so that the same amount is not reversed twice.
Distinguishing a payable from a provision
A known, documented amount owed to a supplier is not a provision simply because it will be paid later. A provision must notably be recognised when past events suggest that resources will be lost in future financial years. Its amount reflects the likely expenditure required (Article 960e CO). There may be uncertainty about the amount or timing, which needs to be assessed.
The Code of Obligations also allows provisions in certain other circumstances. Recognition in the accounts and deductibility for tax purposes are separate questions.
An accounting provision reduces profit when it is recognised, but does not create a cash reserve. Funding for any eventual payment therefore needs to be planned separately.
Understanding equity
In a company such as a Sàrl or SA, equity notably includes share capital, reserves and the result for the year. A loss reduces equity; retained profits can increase it.
A loan from a shareholder remains a liability if it retains the nature of a loan. The fact that the lender also owns the business does not automatically turn it into equity. Amounts owed to holders of equity interests must be disclosed separately in the balance sheet or the notes (Article 959a paragraph 4 CO).
In a sole proprietorship, the owner’s contributions and drawings also affect the capital accounts. They should not be confused with sales or operating expenses.
A shareholder’s payment can have different meanings
The company receives CHF 20,000 from a shareholder into its bank account. That movement alone does not tell you which account to credit. You need to understand and document the transaction.
| Actual nature of the payment | Simplified accounting treatment |
|---|---|
| Repayable shareholder loan | Increase in cash and in a liability to the shareholder |
| Payment of a validly approved and completed capital contribution | Increase in cash and equity according to the transaction documents |
| Repayment of an amount the shareholder owed the company | Increase in cash and decrease in the receivable from the shareholder |
None of these payments is a sale. However, their effects on liabilities and equity are different. Writing “contribution” in the bank transfer reference does not turn a loan into capital: the agreements and formalities must support the accounting treatment used.
Keep the contracts, resolutions and repayment references with the accounting entry. This is particularly important when assessing indebtedness or whether funds can be returned to a shareholder.
From the balance sheet to a payment schedule
Total liabilities do not tell you when each amount must be paid. To prepare for the coming months, record a due date, a creditor and a supporting document for each item. You will have a more useful tool than a simple list of amounts.
Take a CHF 60,000 loan with CHF 12,000 of principal due within twelve months of year-end. In this example, that portion is current; the remaining CHF 48,000 is non-current, provided it falls due beyond both that period and the normal operating cycle. Expected interest payments also belong in the cash flow budget, separately from repayments of principal.
Next, investigate unusual balances. Reviewing supplier accounts can reveal an old unpaid or disputed invoice, or one already settled but incorrectly reconciled. A liability for social security contributions should match the statements and payments. A shareholder loan requires clear agreed terms; a close relationship with the lender does not replace a repayment schedule.
This review helps you correct the accounts and anticipate cash outflows. It also avoids treating cash as “available” when it is already needed for upcoming commitments.
Looking beyond total liabilities
Look at due dates, interest, guarantees and dependence on individual sources of financing. A business can have relatively little debt overall but still face difficulty if everything falls due before its customers pay. Working capital requirements help explain this gap between outgoing payments and incoming receipts.
Financial ratios help assess the structure, provided you also review contracts and forecasts. A debt ratio cannot be judged without considering the industry, revenue stability and repayment capacity.
At year-end, reconcile balances with invoices, contracts and statements. Looking only at debts already paid can leave unrecorded obligations unnoticed.
Know your commitments and keep room to act
Monitoring liabilities tells you whom the business owes, when payment is due and on what terms. This visibility makes discussions with shareholders, suppliers and lenders easier.
Our accounting team can help connect your balances, contracts and due dates. That provides a sound basis for planning cash flow before a payment becomes urgent.
Frequently asked questions
Does the French term “passif” mean only liabilities?
No. In a Swiss balance sheet, “passif” includes both liabilities and equity. In English, equity is presented separately from liabilities.
Is a provision cash set aside?
No. It is an accounting entry. The money needed for payment must be monitored separately.
Is a customer’s advance payment immediately a profit?
Not automatically. You must examine the service and the financial year to which it relates, as well as the applicable VAT treatment.
Sources and references
Romain Prieur is a Swiss certified public accountant and the founder of Entreprendre.ch. With more than ten years of experience in auditing and supporting businesses in Switzerland, he advises entrepreneurs on company formation, accounting and taxation.
