Annual accounts – relatively easily completed!
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The current assets are very important, as they must be looked at as "breathing air" of an enterprise. Everything considered as current assets can be changed into liquidity in a short term, which secures the ability to pay.
The positions within the current assets usually are based on third party confirmations and therefore can relatively easy be proofed. Important for the preparation of the annual accounts is that the following documents are available:
Liquid funds contain cash balances, post and bank accounts and all other positions that can immediately be transformed into liquid funds (such as money market funds etc.)
For the annual accounts proof of balances respectively annual confirmations of all post and / or bank accounts have to be available. If cash is held also a cashbook has to be prepared and the amount of petty cash available at the end of the year needs to be proven. These balances must be adjusted with the balances of the respective accounts. It is mandatory to determine all differences and rebook them in the accounting.
If there are liquid funds in foreign currency, they have to be valuated at the currency rates provided by the federal tax authority at year-end. The valuation differences (FOREX gain or loss) have to be booked against the currency gain or loss accounts within the profit and loss statement.
This position holds all receivables resulting from the main purpose of the enterprise.
To proof this position, we first have to check if all necessary invoices have been issued. If this task is completed, it must be checked if all invoices have been entered into the accounts. Independent from the fact if only a simple list of open positions has been produced or an accounts receivable accounting has been used, the balance of the open positions MUST be in line with the amount shown in the books.
If there are trade receivables in foreign currency similar procedures as shown within the section of the liquid funds (see above) have to be executed.
More valuation issues arise for receivables. You have to clarify if there are amounts at risk due to the fact that clients are not able to pay or are always late with their payments. The height of the credit risk has to be checked in every case. Indications can be: late payment, no response to reminders, market information etc. In these cases, every client with such indications has to be looked at and valuated. In addition, general risk allowance is accepted by the tax authorities. The allowances depend on the canton and can be found in the respective cantonal tax law. The respective amounts that have been calculated based on this information have to be booked into a minus-asset-account, valuation risks on receivables.
Other receivables comprise all receivables that are not directly connected to the purpose of the company as for example: Deposits, value added or withholding tax or short-term loans.
Valuation issues are like those shown above for trade receivables.
Of importance is the fact, that such goods are thought to be sold within the activities of the operation. Stocks of good can be raw materials, half finished goods, finished goods, trading goods etc. (goods, that shall be rented or leased out have to be included too).
Work in progress accounts for work that has already been started but has not yet been invoiced. The usual proof for these positions is an inventory. In an inventory all goods on stock are counted and recorded within an inventory list including the acquisition- or production cost. The result of the stocktaking is an inventory signed by the persons in the company authorised to do so. All goods ordered but still in transit and all goods in consignation (already at the clients site and to be paid when sold), have to be accounted for too.
Increases or decreases of stocks have to be accounted for. And this as well in the inventory account as in the profit and loss statement. Increase has to be booked as a reduction of the cost of goods sold whereas a decrease has to be added to the amount of cost of goods sold.
Valuation activities have to be run too. It has to be checked if there are outdated, rotten or obsolete inventories or if the prices of goods bought have dropped. Indications are unchanged inventories over a long period of time, dropping market prices etc. Depending on the judgement of specialists in your company value adjustments must be done.
Additionally, the value of the stock can be reduced by one third of the total value, as this is accepted by the tax authorities. If not necessary, a part or the full amount have to be looked at a so called hidden reserve (which is allowed in Swiss accounting based on the principle of prudence. Hidden reserves shall be looked at in another article dealing with special cases within the annual accounts.
Securities are shares, obligation, participation papers, investment fund units etc. Securities within the current asses are not held with a long-term purpose but are only held as a liquidity reserve with a return perspective. It can be sold and turned into liquidity at any given time.
Deposited statements of the respective banks, which have to be reconciled with the inventory in the bookkeeping serve as proof. Differences must be searched for and updated accordingly.
Valuation is an issue, too. Depending on the valuation decision they can be valued at market price or at the recognition of loss principle.
If Market Value is the chosen principle the total amount of securities must be in line with the annual accounts. Based on the principle of prudence a fluctuation reserve can be claimed and booked to account for a possible negative performance. If the recognition of loss principle is used all not realized earnings are not to be booked, whereas unrealized losses at the same time are to be accounted for. This means earning can only be accounted for when the securities are sold, whereas losses have to be booked also when securities are held.
Accruals will be especially covered in another Blog article.
If you have questions concerning the recognition or valuation of current assets or our expert Franziska Renggli is more than ready to help you along. Just get in touch.
