Our blog

Hidden reserves arise when expenses are overestimated and revenues are underestimated, using methods such as undervaluation of assets and overvaluation of liabilities. They affect the external income statement through targeted balance sheet manipulation.

The expenses and revenues listed in the profit and loss statement are corrected through accrual accounting before the annual financial statements are prepared. Accrual entries adjust these items to the correct period.

Final debtor losses are written off directly; anticipated losses are recorded indirectly through bad debt provision. Bad debt provision serves the value adjustment of outstanding receivables.

Depreciation can be recorded directly on the fixed asset account or indirectly through an allowance account, whereby the balance sheet shows the book value or acquisition cost depending on the method. With the direct method, the depreciation is recorded directly on the machinery account, with the indirect method on an allowance account.

Two methods of depreciation: straight-line with a constant annual amount and declining balance with a decreasing annual amount. The basis is acquisition value, useful life, and salvage value.

Depreciation spreads the costs of fixed assets over their useful life to correctly present the balance sheet and profit and loss statement. Impairments arise from wear and tear and technological progress.

A newly established company can choose between a short year (6 months) and a long year (18 months) as its first fiscal year. The decision affects tax calculations, while cantonal law determines the maximum duration.

In double-entry accounting, every business transaction is recorded in both debit and credit, which double-confirms the success of the company. Each entry must show the same profit or loss in the balance sheet and income statement.

Accounting serves as a central information tool for internal (management, board of directors) and external recipients (shareholders, creditors, public), with the former having full and the latter only limited access to insights. Different accounting rules are applied in financial reporting, leading to differences between the internal and external presentation of the financial situation such as the "hidden reserves".