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A balance is a fixed part of an accounting. Here you can see how a company financially stands for. What is on a balance sheet and what do these terms mean as assets and liabilities?

What is a balance?

A balance sheet is an overview of assets and receivables on the one hand and debts and equity on the other. So-called balance sheet items are included on both sides. These items are, as the word says, in balance. The left and right sides of a balance are added in exactly the same amount.

A balance always gives a snapshot. Usually the financial situation is on 31 December.

What is on a balance sheet?

On a balance sheet you can come across the following terms:

Debit and credit

Debit and credit are two terms that are often above a balance. Debet is on the left and is derived from the Latin word for 'must'. Credit is on the right and is derived from the Latin word for 'entrustment'.

Debit originally means as much as 'he has to pay' and credit as much as 'he borrows'. This immediately gives a hint of the place of your debtors (the parties from whom you still receive money) and of your creditors (the people or organizations that you still have to pay).

Assets and liabilities

The balance sheet items on the left are the assets. Here are all your possessions, such as money, goods and assets. Outstanding receivables from debtors are also a possession. You can ever collect it.

The balance sheet items on the right are the liabilities. This includes the financial obligations, such as your debts. You have to pay for it once.

The difference between your assets and liabilities is your equity. This can be positive or negative. In doing so, you put the equity capital right under your liabilities, so that your balance is always in balance.

Income statement

With a profit and loss account, you write off depreciations actively. You do not do this with a balance sheet. You simply set the value for goods on which you write off each year for a lower amount on the balance sheet.

Suppose the entrepreneur's inventory from the example has been written off in five years. Then the inventory for next year for € 80,000 on the balance. The € 20,000 can be deducted from your equity or you make a pot with reservations that you place under the liabilities on your balance sheet.

Types of assets and liabilities

There are two types of assets and liabilities:

1. Fixed assets
Fixed assets are items that have been tied to your company for more than a year, such as your business premises, machines, company cars and inventory. Your formation expenses, purchase amounts, participations and permits are also covered by fixed assets.

2. Current assets
Current assets are assets that you could redeem within a year. These are, for example, your inventories, receivables (the statutory payment term is less than one year) and investments for the short term, such as securities and your cash and cash equivalents, or what you have in cash. Prepaid expenses as VAT also include current assets.

Liabilities are divided into three types:

1. Own funds
Equity is what you have invested in the company, profit or loss, reserves and any subsidiaries. If you have a BV, the value of the shares and any share premium (the difference in value between what is paid and the current rate) also fall under equity.

2. Short loan capital
Short loan capital concerns short-term debts that you have to pay within one year. Think, for example, of salaries for your staff or taxes.

3. Long loan capital
Long-term debt consists of debts that last longer than a year, such as a business loan or a mortgage.

Other liabilities include the group equity (the assets of a legal entity), subordinated loans and provisions, such as the reservations for your pension or insurances.

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