General Balance of a Company: Structure, Types, How to Do It and Example

He balance sheet of a company It informs the assets, liabilities and capital of the shareholders at a given moment, giving a basis for calculating the rates of return and evaluating their capital structure. Give a photograph of the financial situation of the company in a single moment, what it owns and owes, and the amount invested by the shareholders.

The balance sheet is adjusted to the following equation, where assets are balanced on the one hand, and liabilities plus shareholders' equity (assets = liabilities + net worth) on the other side. It is called balance because the equation is balanced or balanced.

This is intuitive: a company has to pay for everything it owns (assets), whether it is borrowing money (assuming debts) or borrowing it from investors (issuing shareholder capital). The balance sheet, together with the statements of income and cash flow, is the cornerstone of the financial statements of any company.

Balance sheet structure

The general balance is composed of the following elements:

Assets

Assets are all the elements that the company owns. There are two types of assets: circulating and non-circulating.

- Current assets are the elements that the company has acquired and that will be converted into cash in less than one year. Current assets, inventories, accounts receivable and prepaid insurance are considered current assets.

- Non-current assets are the fixed assets that the company owns. They fall into this category office equipment, property of buildings, land, long-term investments, stocks and bonds.

Liabilities

They are payments that the company must make. Like assets, there are current and non-current liabilities.

- Current liabilities represent the payment obligations that the company must pay within 12 months after the balance sheet date. For example, bills payable to suppliers, payable wages and payable income taxes.

- Non-current liabilities are amounts that the company has more than one year to pay. For example, bank obligations and debts. These liabilities are one of the sources of financing of the company's assets.

Capital

It is the share held by the shareholders of the business. Capital is another source of financing. When the obligations are subtracted from the assets of the company, the result is capital. The capital is composed of paid capital and retained earnings.

- Paid capital is the amount that each shareholder initially paid for their shares.

- The retained earnings refer to the amount of money that the company did not sell to the shareholders and, in its place, it reinvested in itself.

Types

There are several types of balance. The most common are the following:

Classified balance

Presents information about the assets, liabilities and capital of a company classified into subcategories of accounts. It is the most common type of balance sheet presentation, and it does a good job of consolidating a large number of individual accounts in a format that is fully legible.

Accountants must present the balance sheet information in the same classification structure during the different periods, to make the information more comparable.

Common size balance

It presents not only the standard information contained in a balance sheet, but also a column that places the same information as a percentage of total assets (for asset lines) or as a percentage of total liabilities and equity. It is useful to examine the relative changes in the size of the different accounts.

Comparative balance

This format presents the parallel information on assets, liabilities and assets of a company from multiple moments in time. For example, a comparative balance sheet could present the balance sheet at the end of each year for the last three years. It is useful to highlight changes over time.

Vertical balance

The presentation format of the balance sheet is a single column of numbers, beginning with the line items of assets, followed by the line items of liabilities and ending with the capital line items. Within each of these categories, the items are presented in decreasing order of liquidity.

How to make a general balance?

The information necessary to make a general balance is in the general ledger of the company, where all financial transactions for a particular period are recorded.

Use the basic accounting equation

This is: assets = liabilities + equity.

The balance sheet of a company has three sections:

Assets

the resources you have.

Liabilities

The debts you have.

Heritage

The contributions of the shareholders and the profits of the company.

Place the heading and date for the balance sheet

Use the title"balance sheet"at the top of the page. Below, list the name of the organization and the specific date in effect of the balance.

Preparation of the assets section

- List all current assets, which can be converted into cash less than one year after the balance sheet date. They are listed in order of their liquidity, or the ease with which they could become cash. The common accounts are: cash, negotiable securities, accounts receivable, inventory and prepaid expenses.

- Include the subtotal of current assets, calling it"total current assets".

- List all non-current assets or fixed assets, which are the properties, plants and equipment of a company that are used for more than one year, less depreciation.

- List the intangible or non-monetary assets that will last more than one year, such as patents, copyrights, trademarks.

- Include the subtotal of non-current assets, calling it"Total Fixed Assets".

- Add the subtotals of current and fixed assets, labeling it"total assets".

Preparation of the liabilities section

- Determine the current liabilities, which are due within a year after the balance sheet date. The common accounts are: accounts payable, short-term notes.

- Include the subtotal of current liabilities and title it"total current liabilities".

- Calculate long-term liabilities, which will not be settled within a year. They include long-term promissory notes and mortgages, pension plans.

- Include the subtotal of long-term liabilities and call it"total long-term liabilities".

- Add the subtotals of current and long-term liabilities. Name it"total liabilities".

Calculation of assets and totals

- Make a list of all capital accounts, such as ordinary shares, treasury shares and the total retained earnings.

- Calculate the retained earnings, which are the profits that a company has obtained in a period of time. The amount of accumulated earnings is sought in the balance of the previous period, adding it to the profit obtained in the income statement, thus obtaining the total of current retained earnings.

- All the patrimonial accounts are added, placing"total patrimony".

- Add the amounts of"total liabilities"and"total assets". Call it as"total liability and equity."

- The balance was prepared correctly if"total assets"and"total liabilities and equity"are equal.

Example

Below is an example of the balance sheet of a small business:

References

1. Investopedia (2018). Balance Sheet. Taken from: investopedia.com
2. Wikipedia, the free encyclopedia (2018). Balance Sheet. Taken from: en.wikipedia.org.
3. Rochelle Bailis (2017). 5 Simple Ways to Create a Balance Sheet. QuickBooks Resource Center. Taken from: quickbooks.intuit.com.
4. Sage Advice (2015). What are balance sheets and why are they important? Taken from: sage.com.
5. Corporate Finance Institute (2018). Balance Sheet. Taken from: corporatefinanceinstitute.com.
6. Small Business Development Corporation (2016). Example balance sheet. Taken from: smallbusiness.wa.gov.au.
7. Accounting Tools (2017). Types of balance sheet formats. Taken from: accountingtools.com.