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In Romania, every company has to prepare a series of accounting documents every year, and in most cases it is required to prepare a balance sheet and profit and loss account.
What is the balance sheet?
A balance sheet provides an overview of the company's financial position, showing its assets and how they are financed either through liabilities (debts), equity (sale of shares), or a combination of both.
It is an accounting document that shows the company's assets for a given period, such as a quarter or fiscal year.
By examining the balance sheet, entrepreneurs can identify potential financial problems early on and take steps to improve the financial state of their company.
The basis of this type of financial document is the accounting equation, according to which total assets must equal the sum of liabilities and equity:
Assets = Liabilities + Equity
What are the components of a balance sheet?
The structure of the balance sheet can vary slightly between organisations and industries, but there are some categories and items that are almost always included in the balance sheet.
We will briefly review the main common elements relating to current assets, non-current assets, current liabilities, long-term liabilities and equity.
1. Current assets (current assets)
Cash, as well as other assets that can be converted into cash in the next 12 months.
Examples of current assets include:
- cash and cash equivalents;
- trade and other receivables;
- investments;
- stocks;
- assets held for sale.
2. Fixed assets (long-term/fixed assets)
Property or equipment that the company owns and uses in its operations to generate revenue. Fixed assets are acquired for long-term use (more than one year). Their value decreases over time due to wear and tear. This change is recorded as depreciation in the income statement.
- property, plant and equipment;
- intangible assets (patents, trademarks, copyrights);
- goodwill.
3. Current liabilities (current liabilities)
Debts and other obligations to creditors that will fall due within the next 12 months. Examples of current liabilities include:
- trade and other debts;
- salary costs;
- current tax liabilities;
- other financial debts;
- debts held for sale.
4. Non-current liabilities (long-term liabilities)
Debts and other obligations to creditors that will not fall due within the next 12 months.
Examples of long-term liabilities include:
- loans payable;
- deferred tax liabilities;
- other long-term debt.
5. Equity capital
These are profits accumulated by the company that have not been distributed to shareholders.
- share capital;
- additional paid-in capital;
- retained profit.
KEY ELEMENTS
- The balance sheet is a basic document used to evaluate a business.
- A balance sheet shows a company's assets, liabilities and equity.
- It gives an overview of a company's finances (what it owns and what it owes) at the date of preparation.
- The balance sheet follows the equation that assets equal the sum of liabilities and shareholders' equity.
At Banqup, we understand the importance of accurate and timely financial information, which is why our platform offers a variety of tools to help you create and manage your your annual financial statement.
Banqup is the ideal solution to manage your finances and take your business to the next level.
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