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.
