A balance sheet distinguishes between wealth and debts, and is drawn up differently depending on the company type. Here are some examples.
A company’s balance sheet differentiates wealth (assets) from debt (liabilities). A surplus of wealth over debt is called net assets or equity.
Wealth can comprise cash, post office or bank account balances and property (vehicles, equipment, real estate, etc.). In accountancy, this wealth is known as assets. These assets (wealth and investments) provide information about the way in which the company has invested the capital that it had at its disposal.
Debt capital (liabilities), on the other hand, is composed of outstanding debts (creditors) and debts owed to the bank or to private individuals. Together, debt capital and equity comprise the liabilities side of the balance sheet. Liabilities (capital or financing) show who made capital available to the company.
On a balance sheet (this term comes from the Italian word 'bilancia', meaning 'balance'), assets and liabilities are compared and balanced against each other. The balance sheet is only ever a snapshot. The balance sheet date is usually December 31.
A model balance sheet
Assets are separated into current assets and fixed assets:
- Current assets include liquid assets (cash, post office and bank balances) and other items of wealth (client assets (debtors), inventories) that can be converted into cash in the short term (within one year).
- Fixed assets comprise assets that are available to the company in the long term (generally over several years), for example for office set-up, commercial premises, equipment, etc.
The liabilities side differentiates between equity and debt capital:
- Debt capital (or debts) corresponds to claims from external creditors vis-à-vis the company’s wealth. Debt capital is categorized according to maturity (maturities due first are at the top of the list).
- Equity (net wealth) is understood to mean claims from owners’ vis-à-vis the company’s assets. For public limited companies, share capital is included; for limited liability companies, this includes share capital, both reserves and, where applicable, retained profit.