The balance sheet is a document as simplified as possible, built so that it is understandable to the general public. In fact, you don’t even need to understand the difference between debit and credit in order to get all the necessary information from the balance sheet. Therefore, they are afraid and even less to ignore it.
It is the balance sheet that serves as the basis for making critical management decisions, since in it, as in an open book, all the advantages and disadvantages of a particular enterprise are visible. Based on the balance sheet, dozens of key economic indicators are calculated. The value of the balance sheet cannot be overestimated. So grab it right now and start learning.
The first thing that immediately catches your eye is the division of the balance into two most important parts: assets and liabilities. This separation has a very deep meaning. Imagine it this way: assets reflect everything that the enterprise currently owns (it can be cash, equipment, raw materials, finished products , etc.), and liabilities show how the company was able to acquire these assets. In total, there are two ways of acquiring: at the expense of shareholders' funds and at the expense of borrowed funds. In accordance with this logic, all liabilities are divided into capital and debt obligations. As you can see, everything is quite simple, and now we proceed to consider the sections of the balance directly.
In total, the balance sheet has five sections, of which two relate to assets and three to liabilities. The first section displays non-current assets. Simplifying a little, we can say that everything that the company will use for a year or more applies to them. This, of course, is production equipment, intangible assets (various kinds of licenses and patents), construction in progress (or rather investment in it), etc. This section shows the long-term prospects of the company in making a profit.
The second section, current assets, is cash, goods in stock, raw materials and materials, as well as various kinds of debts of economic entities to the company, which will be paid off during the year. This section gives us information on how things are going on at the enterprise at the moment, and whether it will be able to cope with all its current obligations.
The third section, which includes the balance sheet, capital is, as already mentioned, the funds of shareholders. The share of shareholders can be either in the form of cash investments (contribution to the authorized capital, purchase of shares, etc.), or in the form of retained earnings left to work for the needs of the business. This section is especially interesting for investors, since it actually reflects the economic effect (profit) from the work of the enterprise and the return on investment.
Closing the balance sheet are debt obligations, divided into long-term (for more than a year) - the fourth section, and short-term - the fifth section. These sections make it possible to determine how much the enterprise is “mired in debt” and whether it will be able to pay all its obligations on time. Typically, these sections focus on banks and financial institutions.
Thus, the balance sheet, its structure and content are not complicated. You do not need to learn accounting entries to determine the economic efficiency of the enterprise, its liquidity, debt burden, return on investment and other key indicators. In fact, an experienced leader has a quick look at the balance to get an answer to all his questions. After a certain workout, you will definitely succeed in this.