milk book calculation

Small businesses are allowed to keep accounts that are limited to income and expenses as well as the financial situation (so-called "milk book accounting"). The purpose of the looser requirements is to reduce the administrative burden of bookkeeping.

Who is allowed to limit themselves to milk book accounting?

According to Art. 957 para. 2 CO, sole proprietorships and partnerships whose turnover in the previous year was less than 500,000 Fr., associations and foundations that are not required to register in the commercial register, and foundations that are exempt from the obligation to designate an auditing firm, may keep records solely on income and expenditures as well as on the financial situation.

Due to the significant simplification, this form of accounting is mockingly referred to as "milk book accounting." However, the principles of proper accounting, which are listed in Art. 957a para. 2 CO, apply to milk book accounting just as well.

Functioning of the milk book accounting

Unlike double-entry bookkeeping, each business transaction is recorded only once, namely at the time of a payment or disbursement in a corresponding journal. Neither a factual nor a temporal differentiation is necessary. Cash flows can easily be identified using a bank statement. For cash transactions, a cash book should also be kept, which is regularly checked by means of a cash count.

A separate table must be maintained for assets (such as cash, receivables, inventories, unfinished goods, etc.). The annual profit or loss results from the difference between the closing balance at the balance sheet date and the opening balance at the beginning of the fiscal year.

Criticism of the milk book accounting

Milk book accounting, unlike double-entry bookkeeping, is more prone to errors. In addition, the credibility of one's own accounting against capital providers and tax authorities can suffer. Moreover, a business owner should always know the status of their business. Milk book accounting has a very limited nature as a source of information about the financial situation of the business. In addition, it is difficult to meet the formal requirements of VAT with milk book accounting. We recommend handling this through the balance tax rate method.

In our opinion, the disadvantages and the risk of poor decisions based on a faulty or lacking basis for decision exceed the supposed time savings that result from conducting simple instead of double-entry bookkeeping.

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