Finance Management

Balance sheet: what it is, what it is for and how to create one for your company

admin • 17 Sep 2023

Balance sheet is a document that breaks down all of a company's financial assets and liabilities during a given period. This includes income, profit, debts, investments and obligations, for example.

Its objective is to illustrate, with clarity and security, what the financial reality of the institution is at that moment. Therefore, it is essential that it is done correctly, guaranteeing reliable results, which can serve as a basis for effective decision-making.

To help you with this task, we created this article where we explain the main concepts related to the topic and teach you how to put together a balance sheet in a simple way. So, keep reading:

What is a balance sheet for?

The balance sheet is one of the most important reports in effective financial management . The document serves as a guide that indicates all of the company's assets and debts, which makes it possible to broaden the vision of the reality of the business.

The balance sheet can be especially advantageous for leaders and investors, as it allows them to clearly understand whether a business is profitable or not, being considered one of the most accurate financial indicators. From this, it is possible to analyze the company's financial health and propose the necessary changes.

Additionally, it can be a credit guarantor. After all, the solution is a transparent portrait of the organization's finances, which can be used as proof that it has the funds to hire and cover the expense.

When to make a balance sheet?

Balance sheets must be prepared at the end of each fiscal year, that is, every 12 months. This way, it is possible to survey the institution's finances for the period and have them as a basis at the beginning of the next year.

Furthermore, most of the time, whether or not to take stock of your business is not optional. After all, more than a tool for financial management, this type of report is mandatory for all companies, except those covered by Simples Nacional .

Main indicators present in a balance sheet

To make an efficient financial statement, you need to know the indicators that are part of this report. The four main ones are:

• Current assets : all the resources that the company has at its immediate disposal. This includes cash flow, liquid investments, advance payments, stocks of final products and raw materials, among others;
• Non - current assets : resource belonging to the organization, but only in the long term. All possessions and values ​​that will only be available 12 months from the date in question must be included. This topic also includes equipment, patents and other durable goods;
• Current liabilities : all liabilities to be paid within one year. Some examples are: payroll, suppliers, accounts payable and taxes;
• Non - current liabilities : accounts to be paid by the company within a period of more than 12 months. Financial contributions from shareholders and long-term loans are common examples of this type.

Balance sheet: step by step

To prepare a balance sheet, it is essential, above all, to have knowledge in the financial area, which is why it is recommended to seek professional help for this task, but there are simple guidelines that can facilitate this process. Checkout how to do it in five steps:

1- Determine the analysis period

The balance sheet is made based on a period of time, once a year. Therefore, it is necessary to define which months will be analyzed, which may vary depending on the needs of the business.

2- Gather information about assets

Then, make a list of all the company's financial assets and liabilities, including cash flow, tax obligations, accounts receivable , among others. To facilitate organization, they can be divided by nature or dates, for example, as it can be a very extensive list.

3- Carry out the reconciliation

To reconcile accounting balances, compare the information collected with the institution's accounting records . This action ensures that the information is correct. If any discrepancy is found, it must be corrected by making the necessary adjustments.

4- Calculate net worth

To obtain the total value of the company's net equity, it is very simple, just subtract total liabilities from total assets. For example, if the total sum of funds reaches R$120 thousand and liabilities reach R$70 thousand, this means that the organization's own resources are R$50 thousand.

5- Set up the balance sheet

Once all of the organization's financial data is available, it is time to assemble the balance sheet. To do this, include the company data in the header, assets on the left side and liabilities on the right margin. Values ​​should be listed in descending format, from highest to lowest.

Balance Sheet Example

Period analyzed

Current assets

• Cash flow: R$90,000
• Accounts receivable: R$50,000
• Stock: R$30,000

Non-current assets

• Assets (property, equipment, vehicles): R$200,000
• Investments: R$80,000

Total resources : R$400,000

Current liabilities

• Payroll: R$40,000
• Accounts payable: R$20,000
• Suppliers: R$15,000

Non-current liabilities

• Long-term loans: R$50,000
• Debt securities: R$20,000

Total obligations : R$145,000

Net worth: R$255,000 (assets – liabilities)

With this document in hand, it is possible to analyze the relationship between assets and liabilities and understand whether there was a profit or loss in the period. In general, it is expected that there will be a balance between values, indicating a favorable financial health of the institution.

Creating a balance sheet is one of the most efficient ways to have control over your organization's finances. Through the information collected, the manager is able to understand the company's financial situation, which allows him to make correct and well-founded decisions.