What is a company’s balance sheet? The Balance Sheet is an accounting report generated after recording all the financial transactions of a company in a given period. These records of accounting facts are those contained in the company’s daily book. It is your main accounting statement, it represents a static image of your financial position and your assets at a given time, being compared to a “photo”. It is a mandatory statement for SA’s (public limited companies) and its publication occurs quarterly, with emphasis on the balance sheet of the fourth quarter (4Q), which is presented in a consolidated manner with the other quarters, closing the year.
Among the main management reports of a company is the Balance Sheet or the Balance Sheet. Although it has all this importance, it is often overlooked by the entrepreneur. This does not happen by chance, the lack of understanding about how it is formed and what it represents, keeps the entrepreneur away when it is used. Part of the fault is ours, the accountant. We need to bring the entrepreneur closer to this document. Remember that it is a mandatory item for companies according to the legislation.
WHAT IS A BALANCE SHEET FOR
The Balance Sheet is the way of representing all accounting records so that the entrepreneur can use his information. It organizes and classifies the information in blocks for the entrepreneur. This is expected to bring accounting information closer to the company’s managers.
WITH BALANCE IT IS POSSIBLE TO:
- Have a company’s equity position and know all assets, rights and obligations in a given period;
- Understand the sources of funds for the company’s investments;
- Observe its historical evolution for future planning and action;
- Allow and support the payment of dividends to the company’s partners;
- Allow the Tax Planning of the Company;
- Provide useful information to stakeholders
- Before starting a more detailed discussion of the balance sheet, some concepts should first be considered:
- Short Term: considered a year (also called a fiscal year) or even an operating cycle of the company.
- Social exercise: it is the period of time (12 months), after which legal entities determine their results; it may or may not coincide with the calendar year, according to the statute or social contract.
- Long Term: over one year or according to the company’s operational cycle.
- Decreasing Degree of Liquidity: items considered to be the most liquid are classified in the foreground and those with the least liquidity appear among the most recent accounts.
BALANCE SHEET TEMPLATE – EXCEL EXAMPLE
Do download the spreadsheet template Balance Sheet Excel, enter the data of your company and let them do the work the formulas and calculations for you. Obtain in a simplified way the total values of assets and liabilities (detailed also in current, non-current, permanent, etc.), in addition to your net worth. You gain even more efficiency in your management by complementing this tool with the use of the DRE spreadsheet, which comes as a bonus. Depending on the type of your company, presenting a balance sheet may even be a legal obligation.
ACTIVE AND PASSIVE
For accounting, the asset refers to the positive elements of equity, that is, everything that adds to the company’s value. The liabilities are debts, general commitments and the amount due to shareholders. The latter appears on the balance sheet as equity and is the amount that the partners have invested in the business. In order for you to be able to view the company’s assets, you must then list all the rights to receive and the obligations assumed by the company. You must classify these values between assets (which are still divided into current, non-current and permanent assets) and liabilities (which can be current, non-current liabilities or equity).
Here are examples of each of these categories and learn how to classify your balance sheet values:
Current assets: are the company’s accounts receivable, taxes that can be recovered, inventories and other short-term receipts.
Non-current assets: these are judicial deposits, investments and other long-term receipts.
Permanent assets: these are the company’s physical structure, real estate and other fixed and durable assets.
Current Liabilities: accounts payable, amounts due to suppliers, monthly expenses and other short-term expenses.
Non-current liabilities: can be financing, payment of funds, provisions and other long-term obligations.
This is a larger category that includes in a general way the values that the company owes to the partners. They can be classified into:
Share capital: is the initial amount that the shareholders or partners have invested in the company, as well as the subsequent capital contributions or withdrawals.
Profit or Loss: is the value obtained from the organization’s operations that have not yet been withdrawn from the company. They are called retained earnings or retained earnings.
Combining Balance Sheet + Income Statement
The Balance Sheet can also be used in conjunction with the (Income Statement for the Year). This other accounting document examines your performance, analyzes your financial health and seeks to identify which factors are responsible for your profit or loss.
The spreadsheet lists the values declared on your equity and your results automatically and you still have access to financial indicators of liquidity and indebtedness, which are information that can be strategic for your management. Combine the Balance Sheet with the Income Statement to obtain more elaborate analyzes with less work.
What if you don’t have a Balance
Do you know what can happen if you do not have an accounting balance? Here are some items:
- Inability to use the information to defend tax cases.
- Impossibility to distribute Exempt Profit above the Presumption.
- Impossibility to analyze the company’s performance considering competence, a view that Cash Flow will often not allow.
- It will not make it possible to request the company’s judicial reorganization, since it is essential according to Law 11.101 / 2005.