Finance d'entreprise
Business Valuation Cost: Methods & Tips for Switzerland
A business valuation in Switzerland costs CHF 1,500–25,000+. Learn which method fits your situation and how to prepare in 2026.
Élodie Rochat
19 July 2026
7 minutes read
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The Accounting Equation: Key Components & Applications
Learn what the accounting equation means, how it works, and why it matters for every Swiss business.
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Introduction
Every financial transaction a Swiss business makes — issuing an invoice, paying a supplier, taking a bank loan — changes numbers on the balance sheet. But one thing never changes: the two sides always stay equal.
That balance is maintained by the accounting equation: Assets = Liabilities + Equity. It is the foundation of double-entry accounting, the method required for most Swiss businesses under the Swiss Code of Obligations. Without understanding it, a balance sheet is just a list of numbers. With it, the balance sheet tells the full story of a business.
This guide explains what the accounting equation is, what each component means, how it works in practice, and why it matters for Swiss SMEs.
What Is the Accounting Equation?
The accounting equation is the foundation of double-entry bookkeeping.
Accounting equation formula
Assets = Liabilities + Equity
Everything a business owns is funded. It is either by the money it has borrowed or by the owners' own contributions and accumulated profits.
- The left side of the equation lists what the business has.
- The right side shows who provided the funding.
The equation can also be rearranged in two useful ways:
- Equity = Assets − Liabilities: Used to calculate the net value of the business
- Liabilities = Assets − Equity: Used to check the level of external debt relative to total resources
The accounting equation never breaks. Every correctly recorded transaction changes at least two elements, and the total always stays in balance.
In Switzerland, this equation is the direct foundation of the balance sheet required under CO Art. 959. The diagram above shows all three components and what each typically contains in a Swiss business context.
The Accounting Equation Under Swiss Law
The accounting equation is not just a conceptual tool. It is embedded in Swiss law.
The Swiss Code of Obligations Art. 957 et seq. requires all legal entities and partnerships with annual revenue exceeding CHF 500,000 to maintain double-entry accounts and prepare annual financial statements. This requirement applies to SAs, SàrLs, cooperatives, associations, and foundations registered in Switzerland.
CO Art. 959a mandates a specific minimum balance sheet structure that directly reflects the accounting equation:
- Left side (assets): Current assets listed first, in order of liquidity, followed by non-current assets
- Right side (liabilities and equity): Short-term liabilities listed first, then long-term liabilities, then equity components
Companies that apply Swiss GAAP FER, which are the most widely used voluntary Swiss accounting standard for SMEs and groups, follow the same structure, with more specific guidance on how each component must be measured and disclosed.
The Latest Update
Since the 1 January 2023 Swiss company law revision, retained earnings brought forward and the current year's result must be shown as separate components of equity on the balance sheet. This affects how the equity side of the accounting equation is displayed in Swiss annual accounts.
The Three Components of the Accounting Equation
The three components of the equation each represent a different relationship the business has with its resources and obligations.
1. Assets: What the Business Owns or Controls
Assets are resources the business owns or controls that are expected to deliver future economic benefits. The Swiss CO defines an asset precisely: it must be recognised on the balance sheet only if an inflow of funds is probable and its value can be reliably measured (CO Art. 959).
Assets fall into two categories:
- Current assets (Umlaufvermögen / actifs circulants): They are likely converted to cash within 12 months. Examples: cash, trade receivables, inventory, and prepayments
- Non-current assets (Anlagevermögen / actifs immobilisés): They are held for longer-term use. Examples: machinery, vehicles, property, software licences, and patents
On a Swiss balance sheet, assets are listed in order of liquidity, with cash appearing first, and long-term fixed assets appearing last.
2. Liabilities: What the Business Owes
Liabilities are obligations that the business must settle in the future.
Under the Swiss CO, a liability must be recognised if an outflow of funds is probable and the amount can be reliably estimated.
Liabilities are split into two categories:
- Short-term liabilities (kurzfristige Verbindlichkeiten / dettes à court terme): Due within 12 months. Examples: accounts payable, bank overdrafts, tax payable, and accrued expenses
- Long-term liabilities (langfristige Verbindlichkeiten / dettes à long terme): Due beyond 12 months. Examples: long-term bank loans, bonds, and lease obligations
3. Equity: What Belongs to the Owners
Equity (Eigenkapital / fonds propres) is the residual interest in the business after all liabilities are subtracted from assets.
In simple terms, it is what the owners would keep if the business sold everything it owns and paid off everything it owes.
For a Swiss Public Limited Company (PLC) or a Limited Liability Company (LLC), equity includes:
- Share capital: The founders' initial investment
- Legal reserves: Mandatory reserves under Swiss law
- Voluntary reserves: Discretionary reserves decided by the board
- Retained earnings brought forward: Accumulated profits from prior years
- Current year's result: The profit or loss from the current financial year
The 2023 Swiss company law revision made the last two items mandatory as separate line items. They can no longer be combined in a single equity figure.
Equity grows when the business is profitable. It shrinks when the business posts a loss or distributes dividends to shareholders.
The Expanded Accounting Equation: Revenue and Expenses
The basic accounting equation — Assets = Liabilities + Equity — shows the financial position at a single point in time. The expanded accounting equation shows how day-to-day business activity connects to that position.
Formula
Assets = Liabilities + Share Capital + Retained Earnings + Revenue − Expenses − Dividends
Here is how each new element works:
- Revenue increases equity. When a Swiss business delivers a service and issues an invoice, income is recorded. Equity grows through the income statement
- Expenses decrease equity. Every cost that gets paid, including salaries, rent, materials, and professional fees, reduces the equity position
- Dividends also decrease equity. When an SA distributes profits to shareholders, equity falls by the amount distributed
At year-end, the net profit or loss from the income statement flows into the equity section of the balance sheet. This connection between the P&L and the balance sheet is the expanded equation made visible.
Common Situation for Swiss SMEs
A business can be generating good revenue but still have weak equity, if expenses are consuming most of it. The expanded equation shows this dynamic clearly — in a way that the basic balance sheet alone does not.
How to Apply the Accounting Equation: A Swiss SME Example
Here is how the accounting equation changes step by step through the early life of a Swiss Limited Liability Company (LLC).
Step 1: Forming an LLC
The minimum share capital for a Swiss LLC is CHF 20,000. The founding owner deposits CHF 20,000 into the company bank account.
"Assets (cash CHF 20,000) = Liabilities (CHF 0) + Equity (share capital CHF 20,000) "
Step 2: Taking a CHF 50,000 bank loan
The company borrows CHF 50,000 from a Swiss bank.
"Assets (cash CHF 70,000) = Liabilities (loan CHF 50,000) + Equity (CHF 20,000) "
Step 3: Buying equipment for CHF 30,000 cash
Cash drops from CHF 70,000 to CHF 40,000. Equipment increases to CHF 30,000. Total assets remain CHF 70,000.
"Assets (cash CHF 40,000 + equipment CHF 30,000 = CHF 70,000) = Liabilities (CHF 50,000) + Equity (CHF 20,000) "
Step 4: Delivering services and invoicing CHF 15,000
A trade receivable of CHF 15,000 is created. Revenue of CHF 15,000 is recorded, increasing equity.
"Assets (CHF 85,000) = Liabilities (CHF 50,000) + Equity (CHF 35,000) "
Step 5: Client pays the CHF 15,000 invoice
Receivables drop by CHF 15,000. Cash increases by CHF 15,000. The composition of assets changes, but the total stays the same.
"Assets (CHF 85,000) = Liabilities (CHF 50,000) + Equity (CHF 35,000) "
At every step, both sides of the equation balance. This is the accounting equation in action. The reason a correctly prepared Swiss balance sheet always shows equal totals on both sides.
If you are setting up a business in Vaud and want your accounts structured correctly from day one, Fiduciaire Vaudoise can set up your bookkeeping system and chart of accounts from the start.
How Fiduciaire Vaudoise Can Help Your Business
The accounting equation is the logic that holds every set of financial statements together. But applying it correctly across hundreds or thousands of transactions per year. The process must be in compliance with Swiss CO requirements and Swiss GAAP FER.
Fiduciaire Vaudoise provides the full accounting cycle for businesses in Vaud and across Switzerland:
- Bookkeeping: Every transaction is recorded with the correct debit and credit entries, maintaining the balance of the accounting equation throughout the year.
- Balance sheet preparation: At year-end, we prepare the balance sheet per the mandatory CO Art. 959a structure.
- Swiss GAAP FER reporting: For businesses that need to go beyond the CO minimum, we prepare financial statements under Swiss GAAP FER. It includes the disclosures, notes, and valuation principles that lenders, investors, and auditors expect.
- Tax-ready accounts: Swiss cantonal and federal corporate tax filings are based directly on the annual financial statements. Accurate accounting equation entries mean accurate tax figures.
The equation is simple. Applying it consistently, correctly, and in compliance with Swiss law is what takes expertise.
FAQ
Because of double-entry bookkeeping, every transaction affects at least two accounts in equal and opposite directions. One account is debited and another is credited by the same amount. The total on both sides of the equation moves equally, so the balance is never disturbed.
Conclusion
The accounting equation: Assets = Liabilities + Equity. This is simple in concept and fundamental in practice.
Every balance sheet a Swiss business produces is a direct expression of it. Every transaction that goes into the books is an application of it.
Understanding it is the difference between reading financial statements and actually knowing what they say.
Want your accounting to be as clear as the equation behind it? Get in touch to discuss how Fiduciarie Vaudouise can support your business accounting.
Élodie Rochat
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