First of all it is important to remember that the balance sheet is part of the so-called financial statements of the company. These documents must be prepared by the merchant at the end of the accounting year. In order to know the financial and economic status of the firm.
In short, the Financial Statements are useful not only as a reflection of what is happening, but they are fundamental for decision-making and for the distribution of profits and the payment of taxes to the Treasury.
Apart from the general balance that we deal with in this article are the Statement of Income, the Statement of Surplus, the Statement of Changes in the Financial Situation and the Statement of Cash Flows.
Why call the Balance Sheet as a photograph of your company? This is due to its very definition. Since it is a basic financial statement that reports on a certain date the financial situation of your company. That is to say, it shows you how much you have in cash, inventories, banks, real estate, and in portfolio or accounts receivable and at the same time informs you how much you owe to suppliers, lenders, the treasury, etc. all this in accordance with accepted accounting principles. Finally, how much really belongs to you and your company.
Only real accounts appear on the balance sheet, and must be prepared at least once a year dated December 31 and be signed by the corresponding managers, namely: the accountant, the statutory auditor (if needed), and the manager.
Note that the so-called equity equation must always be checked in the total values.
ASSETS = LIABILITIES + EQUITY or ASSETS - LIABILITIES = EQUITY
The Asset is what you have, this is the cash on hand, what you find in the banks, the accounts receivable, the inventories, the real estate, your machinery and equipment.
In order to facilitate the analysis of the data, the Asset is classified according to its degree of availability, that is, how easily it can be settled or exchanged for cash in a given period.
Current active
This includes available calls, inventories, and the current portion of investments and debtors. That is to say:
- Cash: Cash and checks a day.Banks: Balance to date.Accounts receivable.Inventory: Of raw materials, products in process and finished.
Non-current or fixed assets
In this are the investment groups and long-term debtors, that is, the non-current portion.
- Property, plant and equipment. Intangibles: these are the patent marks, licenses, etc. Deferred: expenses paid in advance and deferred charges. Other assets: art and various. Valuations: of investments, plant and equipment, etc.
The latter are not for sale unless you are broke and you plan to liquidate the company or make substantial modifications.
The Liability is what you owe, accounts payable, documents payable, mortgages payable etc. This is classified according to enforceability, that is, how long you have to cover those debts.
Current liabilities
In this are the levies and rates, estimated liabilities and provisions, the current part of financial obligations, suppliers, accounts payable and labor obligations.
Generally these accounts payable must be canceled in 90 days.
Long-term liabilities
Here are the financial obligations, providers, accounts payable, and long-term employment obligations.
Deferred
Income received in advance and credits.
Other passives
Advances, advances received, various.
These liabilities must be paid in instances longer than 90 days, such as a mortgage.
The Heritage. Finally we tell what really is yours after assuming that you cancel all your debts. Heritage is the fruit of your activity, so the idea is that it grows as you work. Wealth is classified as follows to maintain manageable order.
- Social capital. Capital surplus. Bookings. Capital appreciation. Dividends. Results of the exercise. Result of previous years. Reappraisal surplus.
If you have an updated balance it will be much easier to have an idea of how things are going, but ultimately to achieve this document you must be aware that constant work is needed to collect and organize the figures.
