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Balance Sheet Concept
Balance sheet builds a representation
board of the company’s heritage (group of values used by the economic unit in the pursuit of its activity) at a certain moment. Since the
heritage is a group of heterogeneous values, there is the need to group
them into homogeneous sets, (equipments, debts from others, debts to
others, cash, bank deposits, merchandise,…).
In heritage we can distinguish two classes
of distinct property elements: on one hand what it has got (a set of
goods and a set of rights) e, on the other hand what it owes (a set of
duties). The first set is designated by Assets; the second set is
designated by Liabilities. This way is easy to understand that the
difference between the Assets and the Liabilities represents the
heritage value, or Equity, or even the company’s Net Position.
Beyond the juridical perspective of the
Balance (representation of a group of goods and rights, on one hand and
a group of duties, on the other), the Balance can also be analyzed on a
more financial perspective: a group of capital applications (or
investments) and a group of funding sources.
In fact, the Assets, where are included
the goods and the rights owned by the company aren’t more than different
applications overlooking its activity development. On the other hand,
the Liabilities, that include the duties (or debts) and the Equity, that
include, among others the social capital and the company’s present and
past results, can be considered as funding sources of the applications
made.
The Balance’s elements can still be
understood as a group of assets:
- Fixed Assets (Tangibles) – represents
the infrastructure of the company and it’s not destined to be turned
into liquid assets.
- Current Assets – is formed by the
interchangeable financial means and associated to functioning and
exploitation (debts to others, existences and availabilities).
- Equity – group of financial means
belonging to the company self.
- Debt Capital – composed by the financial
means placed at the company’s disposal by others (liabilities).
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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