VAT on cash basis and open invoices at year-end
There are two methods established by the Federal Tax Administration for collecting Value Added Tax (VAT):
- In the invoice-based method, VAT is recorded when the invoice is issued or received, regardless of when payment is made or received.
- In the cash-based method, VAT is recorded only when the payment is received (for customers) or made (for suppliers).
The cash-based method is often chosen by small businesses and professionals because it avoids paying VAT in advance on amounts that have not yet been actually collected.
This page provides a general overview of the VAT cash-based method and refers to detailed pages for operational entries.
VAT on a cash basis: the basic principle
In the VAT cash-based method, the focus is not on the invoice date, but on the moment the financial transaction occurs. This approach is designed to simplify daily management and to avoid paying VAT in advance when the money has not yet actually been collected or paid. With the cash-based method:
- VAT becomes due only at the time of collection (for customers)
- VAT becomes deductible only at the time of payment (for suppliers)
Therefore, during the year, issued or received invoices do not affect VAT until the payment or receipt actually occurs.
Setting up customer and supplier accounts with VAT on a cash basis
With VAT under the cash-based method, during the year it is not necessary to manage customers and suppliers. However, if you still wish to manage invoices and due dates, customer and supplier accounts can be set up using cost and profit centers.
For more information, see:
Why accruals are needed at year-end
Even if operations are based on the cash principle during the year, at year-end it is necessary to apply the accrual principle. This allows costs and revenues to be properly attributed to the year they belong to, providing an accurate financial picture of the activity. At the end of the fiscal year, it is essential to determine the correct economic result for the year.
This means that:
- the revenues of the year must also include invoices issued but not yet collected
- the costs of the year must also include invoices received but not yet paid
For this reason, outstanding invoices are recorded as accrual invoices, without anticipating VAT.
Recording outstanding customer invoices
At year-end, with the VAT cash-based method, it is necessary to record customer invoices that have been issued but not yet collected, in order to correctly allocate revenues to the fiscal year. On the dedicated page, you will find the entries to be made on 31.12 and the reversal to be recorded at the beginning of the new year.
Recording outstanding supplier invoices
At year-end, with the VAT cash-based method, it is necessary to record supplier invoices that have been received but not yet paid, in order to correctly allocate costs to the fiscal year. On the dedicated page, you will find the entries to be made on 31.12 and the reversal to be recorded at the beginning of the new year.
Recording open invoices – Customers
This page explains how to correctly record accounting transactions using the VAT cash basis method, both during the year and at year-end, using Banana Accounting.
It is a practical guide, following the introductory page on VAT on a cash basis, and is intended for VAT taxpayers who apply this method (with prior authorization from the relevant office).
This page describes only the operational entries and does not replace the introductory page on the principles of VAT on a cash basis.
Transactions during the year with VAT on a cash basis
With the VAT cash method, during the year VAT is determined only at the time of receipt or payment. For this reason, customers are not managed as open items during the year.
In practice:
- revenues are recorded when the customer pays
- the VAT code must be entered on the same line as the revenue
The example below shows a possible entry in Banana Accounting for a payment received with VAT on a cash basis.
A bank account receives payment of an invoice from customer Bianchi for CHF 3,500.
The entry is made as follows:
- Debit: bank account
- Credit: revenue account
- VAT Code: VAT code (e.g. V81)
In this way, VAT is recorded only on the amount actually received.
Why additional transactions are needed at year-end
Even if the cash principle is applied during the year, at the end of the fiscal year it is necessary to determine the actual financial result of the year.
For this reason, as of 31.12, invoices issued but not yet collected must be recorded, so that revenues are attributed to the correct fiscal year, without anticipating VAT.
Accounts needed for open customer invoices
To correctly record open customer invoices at year-end, certain specific accounts must be created in the Accounts table.
Balance sheet accounts
- Customers on open invoices (Assets)
- VAT on open customer invoices (Liabilities)
Profit and loss accounts
- Revenues on open customer invoices
These accounts allow you to separately record:
- the revenue attributable to the year
- the VAT, which will only be recorded in the following year
Recording open customer invoices as of 31.12
At year-end, invoices issued to customers but not yet collected must be recorded as follows:
Accounting transation
- First row
- Credit: Revenues on open customer invoices
- Amount: net amount (excluding VAT)
- VAT Code: empty
2. Second row
- Credit: VAT on open customer invoices
- Amount: VAT amount
- VAT Code: empty
3. Third row
- Debit: Customers on open invoices
- Amount: gross amount (including VAT)
- VAT Code: empty
No VAT code should be entered in these transactions, because VAT is not yet due.
Closing open customer invoices in the new year
At the beginning of the new year (01.01), year-end transactions must be reversed to allow normal recording of incoming payments.
Reversal transaction
- First row
- Debit: Revenues on open customer invoices
- Amount: net amount (excluding VAT)
- VAT Code: empty.
2. Second row
- Debit: VAT on open customer invoices
- Amount: VAT amount.
3. Third row
- Credit: Customers on open invoices
- Amount: gross amount (including VAT).
When the customer makes the payment:
- the receipt is recorded as usual
- VAT is recorded in the VAT return of the period in which the payment occurs
Recording open invoices – Suppliers
This page explains how to correctly record supplier-related accounting transactions using the VAT cash method, both during the year and at year-end, using Banana Accounting.
It is a practical guide, following the introductory page on VAT on a cash basis, and is intended for VAT taxpayers who apply this method (with prior authorization from the relevant office).
This page describes only the operational transactions and does not replace the introductory page on the principles of VAT on a cash basis.
Transactions during the year with VAT on a cash basis
With the VAT cash method, VAT is determined only at the time of payment.
For this reason, suppliers are not managed as open items during the year.
In practice:
- costs are recorded when the supplier is paid
- the VAT code must be entered on the same line as the cost
- VAT becomes deductible only at the time of payment
Practical example – Payment of a supplier invoice
The following example shows a possible entry in Banana Accounting for a supplier invoice open as of 31.12.
A bank account is used to pay a supplier invoice from Rossi for CHF 1,200.
The entry is recorded as follows:
- Debit: cost account
- Credit: bank account
- VAT Code: VAT code (e.g. V81)
In this way, VAT is recorded only on the amount actually paid.
Why additional transactions are needed at year-end
Even if the cash principle is applied during the year, at the end of the fiscal year it is necessary to correctly determine the financial result of the year.
For this reason, as of 31.12, invoices received from suppliers but not yet paid must be recorded, so that the costs are attributed to the correct fiscal year, without anticipating the VAT deduction.
Accounts needed for open supplier invoices
To correctly record open supplier invoices at year-end, certain specific accounts must be created in the Accounts table.
Balance sheet accounts
- Suppliers on open invoices (Liabilities)
- VAT on open supplier invoices (Assets)
Profit and loss accounts
- Costs on open supplier invoices
These accounts allow for a clear separation of:
- the cost attributable to the year
- the VAT, which will be deducted only in the following year
Recording open supplier invoices as of 31.12
At year-end, invoices received from suppliers but not yet paid must be recorded as follows.
Accounting transaction
- First row
- Debit: Costs on open supplier invoices
- Amount: amount excluding VAT
- VAT Code: empty
2. Second row
- Debit: VAT on open supplier invoices
- Amount: VAT amount
- VAT Code: empty
3. Third row
- Credit: Suppliers on open invoices
- Amount: gross amount including VAT
- VAT Code: empty
No VAT code should be entered in these entries because the VAT is not yet deductible.
Closing open supplier invoices in the new year
At the beginning of the following year (01.01), year-end entries must be reversed to allow for the normal recording of payments.
Reversal transaction
- First row
- Credit: Costs on open supplier invoices
- Amount: amount excluding VAT
- VAT Code: empty
2. Second row
Credit: VAT on open supplier invoices
Amount: VAT amount
3. Third row
- Debit: Suppliers on open invoices
- Amount: gross amount including VAT
When the invoice is paid:
- the payment is recorded normally
- the VAT is deducted in the VAT report for the period in which the payment occurs
