The asset covers all the accounts that agglutinate the values that the entity has. All elements of the asset are likely to bring money to the company in the future through three different options: its use, sale, or change. The assets are divided into fixed assets (long-term investments), inventories, realizable, and available.
On the contrary, the liability shows all the certain obligations of the entity and the contingencies that must be recorded. These obligations are always economic: loans, purchases with deferred payment, among others.
The net equity can be calculated as the asset minus the liability and represents the contributions of the owners or shareholders plus the undistributed results. In the same way, when negative results (losses) are produced, they will decrease net worth. Net worth or stockholders’ equity also shows the ability of the company to self-finance. They are all those elements that constitute the own financing of the company, for example, the money contributed by the partners the accumulated money of the obtained profits in previous years and the reserves of the company.
The basic accounting equation relates these three concepts: Net worth = Assets – Liabilities.
Balance sheet model
All companies must present a balance sheet, but the type of balance that must be presented varies depending on the kind of company.
A company can present the standard model of the balance sheet or the abbreviated model of the balance sheet.
The abbreviated balance sheet may be made by companies that meet two of the following three circumstances:
- The total asset items do not exceed $4,500,000.00
- The net amount of your annual turnover does not exceed $8,900,000
- The average number of workers employed does not exceed 50.
How to take stock
To be able to take stock of the situation, we must take into account three aspects of the company, already mentioned above, that will help us to have an X-ray of the company:
- Active, which can be circulating (current) or non-circulating (also called fixed, which is the non-current)
- Passive, which can be circulating (current) or non-circulating (also called fixed, which is the non-current)
- Net worth
We are going to see the structure of assets, liabilities, and net worth in the balance sheet to know how a balance is made.
Active
To begin to take stock of the situation, current assets must be recorded and considered. That is all those assets with which the company has a permanent duration and may vary in the short term.
Next, the fixed or immobilized asset, that is, the non-current asset, must be recorded. The fixed asset consists of those assets of the company that has a permanent duration and that are not intended for sale, so they do not vary in the long term, such as machinery and transport vehicles, equipment …
Once we have registered it, we must add the current assets and the fixed assets, which will result in the total assets of the company.
Passive
Similarly, as we have done with the asset, to be able to make the balance of the situation, we are going to record the liabilities of the company, both the current liabilities and the fixed liabilities.
Current liabilities include all the debts that the company must assume as well as the set of obligations that must be met in the short term, such as receipts and invoices payable.
On the other hand, the fixed liabilities are those debts and obligations of the company in the long term, such as loans that the company has requested.
Once we have both parties registered, we calculate the sum of the total liabilities, both current and fixed.
Net worth
Finally, all those funds that the company has, such as the contributions of founders or partners, or the benefits that the company has generated.
Calculate the balance sheet
To calculate the balance sheet, we must take into account the structure that distinguishes assets, liabilities, and net worth, according to the model that Quipu presents us.
If the sum of the total of the asset coincides with the sum of the total liability and net worth, the balance sheet will be well done. Asset = Liability + Net equity.
Balance sheet analysis
From the balance sheet, we can analyze the state of the company and assess the ability to deal with debts or develop their activity.
For example, a good situation for the company is one in which many fixed liabilities are available, as well as a large number of liquid assets, which means that the company will be able to meet short-term debts.
In addition to analyzing the financial status of your business, the balance sheet allows you to see if the company has sufficient working capital, known as working capital.
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