Professional Accountant

How To Read And Understand An Accounting Balance Sheet?

Finance

In the coming weeks, your accountant will most certainly send you the balance sheet for your business. If the data in this table is certainly valuable, you may have some difficulty understanding it well. This is why our trustee helps you to see more clearly.

What Is An Accounting Balance Sheet?

The name balance sheet says everything there is to say. It is a document taking stock of the economic situation of your company. Its objective is therefore simple: synthesize in a summary table both the assets of your company, that is to say, what it owns, all the jobs and its liabilities, that is to say, what it owes, all the resources available to the company.

Generally provided at the end of the accounting year, your balance sheet has the advantage of giving a global vision of your assets at a given time. It is in this sense that we often speak of photography of the situation of your business. It is accompanied by an income statement, which focuses more on the performance of the past year of your business by highlighting the profits but also, if necessary, the losses.

Assets and Liabilities Of The Sheet

Balance Sheet Assets

Assets represent what are also called jobs. They mainly consist of the following elements:

  • The assets called permanent jobs. These are elements whose use is considered sustainable. They include intangible assets (patents, software, licenses, etc.), tangible assets (premises, buildings, equipment, machinery, etc.) and financial assets (financial securities, guarantees, etc.).
  • Current assets or temporary jobs refer to items such as stocks, trade receivables, available values ​​(bank accounts), and financial investments.
  • These two assets are are included in the total assets.

Balance Sheet Liabilities

Liabilities, meanwhile, represent the economic resources of your business. It is :

  • The equity and permanent resources (capital or equity available or unavailable, reserves, retained earnings …)
  • Provisions for risks and charges.
  • The debt, which is also called “current liabilities”.

This item is separated from debts at more than one year and debts at less than one year.

It includes financial debts (investment loans, cash loans, etc.), debts linked to operations (supplier debts, tax, salary, and social debts) and others.

What Indications For Your Business?

Data from the balance sheet gives some very useful indications for checking the financial balance of your business. They allow you to calculate essential concepts such as:

  • The debt ratio, that is to say, the level of a company’s debts about its equity.
  • The working capital (FR), that is to say, all the resources for a long time and that fund fixed assets.
  • The working capital requirement (WCR), that is to say, what the financial needs that your company must face given the cash flow mismatches (expenses and receipts are not realized at the same time: an invoice sent to a customer is paid at 30, 60 or 90 days (while suppliers also require payment within a shorter period).

The role of your professional accountant is of course to establish these indicators and above all to put them in context so that you can more easily interpret and therefore understand them. Following them allows you to better manage your business.

What Is the Interest Of An Accounting Balance Sheet For Your Business?

The interest of the balance sheet for your company lies in the clear economic vision that it allows you. This document makes it possible to produce an analysis of your cash flow (cash flow which is released), essential to verify the solvency and the sustainability of your business. Your accountant can give you sound advice to further optimize the economic situation of your business.

It also plays a role in helping to run a business, allowing you to anticipate risks and plan for the future. A real forecasting tool, assists you in the daily management of your business, for example by highlighting your cash flow difficulties or by clearly determining both your availability and your needs.

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