Trading is often high risk and therefore high return. If the company in which this trade is done is made up of many investors and shareholders, specific reports should be prepared about what is happening in the company. One of these, the balance, is the its capital, debts, assets in a given period It is one of the most important annual accounts that show the (financial) values ​​in detail.

The prepared balance sheet shows the financial activities of the company for a specific period. So it is not a universal truth. For this reason, when an economic analysis of the company in question is required, comparisons must be made between different balance sheets. The process of preparing the balance sheet and its details can sometimes be a bit complicated. Bride balance what is it, what does it do, how do you prepare? Let’s look at the most frequently asked questions in detail.

First, what is a balance?

Balance with its most basic definition; of a company’s liabilities, assets and equity for a specified period It is a financial statement in which is reported. The balance sheet, which allows investors to see returns and shareholders to see the company’s capital structure, clearly shows what the company owns and owes for that period. In this way basic analyzes are made about the company and financial ratios are calculated.

What does the balance do?

As can be seen from the definition, the status of a company in a certain period of time can be viewed through the balance sheet. How much debt does the company have, what are its assets, All economic values ​​that determine the financial structure of the company, such as shareholders’ equity, are determined on the balance sheet. However, it should not be forgotten that the balance sheet only reflects the financial structure of the company for a certain period of time.

Not every business needs to have a lot of revenue to be considered successful. Most importantly, the assets, namely the debt/equity ratio, are healthy. Therefore, the balance Assets = Capital + Liabilities It is drawn up on the basis of a formula. The debt-to-equity ratio of the company in a given period is clearly shown in this financial statement. In this way, new investors and existing shareholders are informed about the financial structure of the company.

What does the balance consist of?

• resources
• debts
• equity

resources

One of the most important items on the balance sheet is the company’s assets. These assets are liquidity. They are ranked according to the ease with which they can be converted into cash. resources; Current assets that are converted into cash within a year or a short time are divided into fixed assets and long-term assets. Current assets are listed as follows;

• Treasury bills, short term certificates of deposit, cash and similar liquid assets.
• Securities such as stocks and debt securities that can be easily converted to cash.
• Accounts Receivable, which refers to the money customers owe the company.
• Inventory indicating all goods available for sale.
• Prepaid expenses expressing paid values ​​such as insurance, rent, advertising contract.

The long-term assets are shown as follows;

• Investments that cannot or cannot be converted into cash in the coming year.
• Fixed assets denoting land, buildings, machinery, equipment and similar sustainable capital.
• Intangible assets referring to property rights and similar intangible assets.

debts

Debt is money that the company has to pay. Bond interest paid on bills, rents, government spending, salaries, foreign payments and the like; recognized as a liability on the balance sheet. debts; It is divided into short-term debt and long-term debt that must be paid within a year.

Current liabilities are listed as follows;

• The current portion of the non-current liabilities that must be paid in that year.
• Interest payable, which expresses the interest on late payments of taxes and similar payments.
• Prepayments received before the service is provided or the product is delivered will be refunded to the customer.
• Payable dividends for which payment has been approved but not yet realized.
• Premiums refundable on incomplete deals.
• Invoices and similar debts to be paid within 30 days.

The long-term debts are listed as follows;

• Long-term debt that expresses the interest and principal on the bonds issued.
• Pension fund debts payable on employees’ pension account.
• Deferred tax liabilities that have accrued but will not be paid during one year.

equity

The money allocated to the owners and shareholders of the company forms the equity item of the balance sheet. They are net assets and are valued over total liabilities. Retained earnings considered in this context represent the net income that the company reinvests or uses to service debt.

An equity share, which refers to a share purchased in a company, is also equity. Can be resold for fundraising purposes or it can be used to prevent takeovers. Items such as common stock, preferred stock, and excess capital are also items considered as equity in the balance sheet.

How and when is the balance sheet prepared?

The formula for preparing a balance sheet is simple; Assets = Capital + Liabilities

By applying this formula, the company balance sheet can be prepared in a simple way. In general, balance sheets are prepared quarterly or annually. It can be drawn up in different periods at the request of the board of directors or a similar control structure. Most importantly, this period is stated in the said financial report.

Many explanations and additional documents can be added to inform those examining the prepared balance sheet. It is the decision of the preparation team to add explanations and documents. The more transparent the company’s financial structure is desired, the more detailed the items on the balance sheet and the notes. Balance sheets are official documents for the company.

Why is the balance sheet important for companies?

Just as we all get from time to time, what we give, should we take out a loan? We calculate ourselves whether we can pay off the debts; That’s exactly what companies do. Of course, the effects of this calculation are much broader in companies because company balance sheets are also shared with new investors.

Let’s look at a large company. The balance sheet has been prepared in such a way that the directors and shareholders of this company are aware of the financial situation. However The same balance sheet is also reviewed by investors and analysts. In other words, the financial situation represented by the balance sheet can affect the future loans, new investments and even the reliability of the company in the market. That is why the balance is extremely important.

Financial overview showing the financial structure of companies in a certain period What is a balance, what does it do, how do you prepare? We’ve covered the details you need to know about the topic by answering frequently asked questions. The details of the preparation of the balance sheet in our country are regulated in the Turkish Commercial Code.