Importance of the Balance Sheet

Inside the world of accounting, the concept of balance sheet is of paramount importance. We understand by balance sheet to the patrimonial situation that an entity (in general, a company or business of some kind) has, in relation to its assets, properties, debts and human resources. The balance sheet is an equation that allows those who direct the entity to know what the state assets of the same based on data such as what one has minus what is owed. In accounting, the idea of ​​"what you have" is known as Assets while "what you owe" is called "Liabilities." The balance sheet then supposes the subtraction of the Liabilities from the Assets to finally know the amount of everything that is owned.

When we talk about the balance sheet, we are talking about an equation that every entity must carry out at least once a year to know the status of its accounts and to control, among other things. things, that the sum of your liabilities (or all that is owed) is not greater than the sum of your assets (or all that you have) because in that case we would be talking about a financial deficit. The importance of the balance sheet then lies in the possibility of knowing the current situation of that entity at a financial and monetary level, avoiding problems of this type.

The balance sheet is, as such, a fairly simple equation in general terms. However, to be carried out requires an arduous job and this is so if one takes into account that everything must be accounted for in order to obtain the most perfect result possible.

In this sense, we can divide the balance sheet into two central pairs that we already mentioned: liabilities and assets. Within assets, we must again divide between fixed assets and current assets: while in the first we find everything that is not intended for sale or to be spent (such as movable and immovable property, intangible assets, long-term investments such as the purchase of shares), in the second we find everything that circulates, mostly money liquid, finished products, raw materials, etc.

In the case of liabilities, we also find the same subdivision: fixed liabilities (medium and long-term debts, own resources, reserves) and current liabilities (short-term debts).