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What is a balance sheet?

Balance Sheet: the financial picture of your company

The balance sheet is a financial statement that portrays the economic situation of enterprises in a given period. The analysis of this defines the relationship between assets, liabilities and equity of the business.

This document is usually made at the end of the financial year of a company. However, it is feasible to create balances relating to more tightly contested lapses. The following functions of a balance sheet are to:

1. Know the total value of assets, liabilities and equity of the firm.

2. Identify the origin and use of assets, and evaluate management and repayment of debts incurred by the business.

3. Facilitate the historical evaluation of corporate finance.

4. Take timely decisions and avoid financial crisis.

As anticipated above, the variables included in the balance sheet are:
Assets

These are basically the assets, rights and resources available to companies to generate future economic benefits.
According to specialists in finance, assets can be classified into two groups:

a) Fixed Assets. This subsection refers to the operational infrastructure of goods, which includes machinery, furniture, transportation equipment, technology and accumulated depreciation. It is also categorised as fixed assets to assets of temporal duration, such as raw materials.

b) Current assets. These are fluid property i.e., or those that can be easily converted into money. In this category are receivables, bank accounts business, sales made on credit, potential investments to be sold, products in process, manufacturing, inventory and items under sale.
Liabilities

These are the obligations of companies in a given cycle. Liabilities are divided into:

a) Non-current liabilities. In this subcategory are located long term debts with financial institutions.

b) Current liabilities. In this group are debt covenants signed with suppliers documented by invoices and taxes.

The balance sheet is nothing more than the value of the business, after subtracting liabilities of the total assets of the company.

To prepare the balance sheet, it is necessary to break down this information in two comparative columns (assets and non-current liabilities and current.)

The next step is to add assets and compare this with total liabilities. The result of this comparison data reveals the assets of the business.

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