Many small businesses start with income-and-expense accounting: they record what comes in and what goes out, and that is it. Others keep double-entry books with a balance sheet and income statement from the outset. The law determines which form is right for you first: the Code of Obligations distinguishes according to who you are and how much turnover you generate. Only then do your own needs come into play, such as a bank loan, inventory or working with a fiduciary. This guide explains both forms in simple terms, shows what the law requires and walks you through the changeover.
What the Code of Obligations requires
The basis is Art. 957 of the Code of Obligations (CO, OR). Para. 1 determines who must keep full accounts and prepare financial reports under the following articles:
- Sole proprietorships and partnerships with sales revenue of at least CHF 500’000 in the previous financial year,
- Legal entities, for example companies limited by shares (AG) and limited liability companies (GmbH). An AG or GmbH therefore falls under para. 1 regardless of size. Associations and foundations, however, benefit from the exception in para. 2 insofar as they are listed there.
Para. 2 sets out the exception. Only income, expenses and financial position need to be recorded by:
- Sole proprietorships and partnerships with sales revenue below CHF 500’000 in the previous financial year,
- Associations and foundations not required to be entered in the commercial register (associations and foundations not subject to registration),
- Foundations exempt from appointing an auditor under Art. 83b of the Swiss Civil Code (ZGB), para. 2.
Two points matter in practice. First, sales revenue from the previous financial year counts, not the current year. Second, income-and-expense accounting is not relief without rules: under para. 3, the principles of proper bookkeeping apply to these businesses by analogy. Under Art. 957a CO, this means, among other things, complete, truthful and systematic recording of business transactions, a voucher for every posting, clear and verifiable bookkeeping, and suitability for the nature and size of the business. An accounting voucher is any written record on paper or electronically that shows the basis of a posting.
Retention is governed equally for both forms: under Art. 958f CO, para. 1, accounting records and vouchers must be retained for ten years, starting at the end of the financial year.
Separate laws apply to taxes and VAT. They are not covered here. Clarify these questions with your fiduciary or the responsible tax administration.
Income-and-expense accounting
Here the law requires two things: an overview of income and expenses, and an overview of financial position. In practice, this means:
- Income and expenses: Record each cash inflow and outflow with date, amount, description and voucher, assigning a category such as “Sales”, “Materials” or “Rent”. The surplus is the difference between the two totals; if negative, it is a deficit.
- Financial position: Record what you own and owe at the reporting date: cash on hand and at the bank, outstanding customer invoices, machinery and inventory, but also loans and outstanding supplier invoices.
The advantage is less administration. You do not need to prepare a balance sheet or maintain every account in double-entry form. The limitation: income-and-expense accounting shows what has been paid, not what has been earned or is owed. An invoice issued in December and paid in January appears in the report only in January. Without keeping this in mind, you may overestimate or underestimate the result for a year.
Double-entry bookkeeping
In double-entry bookkeeping, each business transaction is recorded twice, once as a debit and once as a credit. A cash purchase of materials, for example, reduces cash and increases expenses. Because both sides are always posted, debits and credits must balance at the end; this makes errors visible.
The result is the annual financial statements. Under Art. 958 CO, para. 2, they consist of balance sheet, income statement and notes. The balance sheet shows assets and financing at the reporting date, and the income statement shows the year’s result. Art. 959a and 959b CO prescribe which items must appear separately at a minimum and in what order. On the assets side, minimum classification ranges from cash and cash equivalents through receivables and inventory to tangible fixed assets and intangible assets; on the liabilities and equity side, from trade payables to equity. Under Art. 959c CO, para. 3, sole proprietorships and partnerships may omit the notes unless they must report under the rules for larger businesses.
There is also accrual accounting: under Art. 958b CO, para. 1, expenses and income must be allocated to the appropriate period and matched. Para. 2 permits relief: if net proceeds from goods and services or financial income do not exceed CHF 100’000, the requirement to allocate expenses and income to the appropriate period may be waived, and accounting may instead be based on cash receipts and payments.
Under Art. 958 CO, para. 3, the annual report must be prepared within six months after the end of the financial year and submitted to the competent body for approval.
Comparing the two forms
| Income-and-expense accounting | Double-entry bookkeeping | |
|---|---|---|
| Legal basis | Art. 957 CO, para. 2 | Art. 957 CO, para. 1 and Art. 958 et seq. CO |
| Who | Sole proprietorships and partnerships with sales revenue below CHF 500’000 in the previous financial year; associations and foundations not required to register in the commercial register | Legal entities (except associations and foundations under Art. 957 CO, para. 2); sole proprietorships and partnerships with sales revenue of at least CHF 500’000 |
| Output | Income, expenses, surplus, assets at the reporting date | Balance sheet, income statement, notes where applicable |
| View | What has been paid | What is earned, owed and owned |
| Effort | Low | Higher, with built-in checks |
| Voucher evidence, retention | Yes, Art. 957a and 958f CO | Yes, Art. 957a and 958f CO |
When switching is worthwhile
Switching is mandatory if your sole proprietorship or partnership generated sales revenue of at least CHF 500’000 in the previous financial year (reaching the threshold already counts), or your business is converted into an AG or GmbH. Note that cash receipts and sales revenue can differ: particularly with outstanding invoices, ask your fiduciary in cases of doubt what counts as sales revenue in your case.
A voluntary switch may be worthwhile earlier, for example if:
- You need credit or seek investors who want to see a balance sheet.
- You hold inventory, have many open items or invoice in stages.
- You want to know what a year really cost, regardless of payment timing.
- Your fiduciary prepares financial statements from double entries anyway.
Conversely, if you remain below the threshold and have few open items, the simple form is sufficient and saves time.
Practical example: Schreinerei Muster
Schreinerei Muster is a fictional sole proprietorship with three employees. Sales revenue for financial year 2025 was CHF 312’400. This is below CHF 500’000, so under Art. 957 CO, para. 2, records of income, expenses and financial position suffice for 2026.
The report for 2026 looks like this:
| Income | CHF |
|---|---|
| Furniture sales | 214’300.00 |
| Repairs | 98’500.00 |
| Installations | 53’000.00 |
| Total income | 365’800.00 |
| Expenses | CHF |
|---|---|
| Materials | 142’700.00 |
| Wages and social insurance | 96’400.00 |
| Premises rent | 28’800.00 |
| Vehicle | 11’350.00 |
| Other expenses | 19’700.00 |
| Total expenses | 298’950.00 |
The surplus is CHF 365’800.00 less CHF 298’950.00, or CHF 66’850.00.
Assets at 31 December 2026:
| Item | CHF |
|---|---|
| Cash and bank | 52’430.00 |
| Other assets (subtotal) | 55’600.00 |
| Of which outstanding customer invoices | 21’600.00 |
| Of which machinery | 34’000.00 |
| Liabilities (subtotal) | −32’850.00 |
| Of which outstanding supplier invoices | −7’850.00 |
| Of which bank loan | −25’000.00 |
| Net assets (cash and bank plus other assets less liabilities) | 75’180.00 |
Calculation: 52’430 plus 55’600 less 32’850 equals 75’180. The indented “of which” lines are merely the individual components of the subtotals and are not counted twice.
In spring 2027, the joinery plans to buy a CNC milling machine with a bank loan. The bank wants a balance sheet. Although not obliged, the owner therefore switches voluntarily to double-entry bookkeeping; existing postings are retained.
Making the switch: checklist
- Previous financial year’s sales revenue compared with the CHF 500’000 threshold
- Legal form checked (AG and GmbH: always para. 1, meaning double-entry bookkeeping; associations and foundations: check para. 2)
- Changeover date set, preferably the start of a financial year
- Outstanding customer invoices recorded
- Outstanding supplier invoices recorded
- Inventory, equipment and loans posted at the changeover date
- Cash and bank reconciled with a cash count and bank statement
- Chart of accounts suitable for the new bookkeeping type (see Chart of accounts for SMEs)
- Vouchers complete and retained for ten years
- Outstanding questions discussed with the fiduciary
Bookkeeping obligations for SMEs explains your business’s overall obligations.
How KMU | base helps
Finance | base supports both forms. Choose the bookkeeping type per company and change it later if needed.
1. Set up simple bookkeeping. When setting up a company’s accounts, choose simple bookkeeping under Art. 957 CO, para. 2. It is intended for the cases in para. 2: sole proprietorships and partnerships with sales revenue below CHF 500’000 and associations and foundations not required to register; an AG or GmbH always falls under para. 1. During setup, also choose a chart-of-accounts template, for example for a sole proprietorship, association or micro business.
2. Record income, expenses and transfers. For a company using simple bookkeeping, open Income and expenses from the Finance overview. Record income, expenses and transfers between cash and bank with a category and voucher. The counter-entry is created automatically in the journal.
3. Reports and assets. The page shows cash flows per category with surplus or deficit and assets at the reporting date, split into cash and bank, other assets and liabilities. Invoices count on payment; outstanding invoices appear under “Other assets” or “Liabilities”. At year-end, close the financial year through year-end closing.
4. Guided switch to double-entry bookkeeping. With the “Manage” level, find Bookkeeping type at the bottom of the same page. A guided process lets you switch to double-entry bookkeeping, or back again if needed. All postings and vouchers remain unchanged in the journal. Steps for outstanding invoices, inventory and reconciliation appear in the area itself; afterwards you also see the balance sheet and income statement.
To try it yourself, view the demo or open a trial account. The module guide is under Finance guides. For questions, use our Contact page.
Sources
- Code of Obligations (CO, OR, SR 220), Art. 957, paras. 1 to 3, Art. 957a, paras. 2 and 3, Art. 958, paras. 2 and 3, Art. 958b, paras. 1 and 2, Art. 958f, para. 1, Art. 959a, Art. 959b and Art. 959c, para. 3, as at 1 October 2026: fedlex.admin.ch (German original), accessed on 26.10.2026.
This guide does not replace legal or tax advice. Information as at 26 October 2026.