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The patrimonial balance is a detailed report that provides an accurate overview of a company’s financial status. It takes into account all the assets, liabilities, and profits of the business.

The patrimonial balance is considered the primary financial statement of a company, and it is crucial to comprehend it in order to safeguard the financial well-being of the business.

This document compiles a comprehensive inventory of products, assets, entitlements, and financial commitments associated with the business.

Furthermore, this thorough and structured perspective streamlines the company’s evaluation of profitability, decision-making regarding investment opportunities, and selection of cost-cutting measures.

What does the term “patrimonial balance” refer to?

The balance sheet is a financial document designed to show the financial and economic status of a company during a particular timeframe.

This document, commonly referred to as the accounting balance sheet, is a crucial tool for conducting a thorough assessment of all the assets and liabilities of the company, as well as determining the sources of its funds and investments.

What is the purpose of the balance sheet?

According to this, the patrimonial balance serves various important functions as an accounting tool.

• Examine how well the company is performing financially.
• Comprehend how money moves within the company’s finances.
• To provide a foundation for strategic planning;
• Assistance in determining tax planning strategies, which involves recognizing taxes paid and finding ways to minimize them.
• Assist in making financial decisions with greater precision.
• Offer appropriate financial and accounting data to prospective investors.

When is the appropriate time to create the balance sheet?

The balance sheet is a document that seeks to show the financial status of a company during a specific time frame.

Usually, businesses produce this document on a yearly basis, although they can also generate it more frequently to align with the previously mentioned goals.

As per Section 1 of Article 176 of Law 6.404/76, businesses are required to submit multiple financial reports at the conclusion of each fiscal year, following the company’s accounting records.

Hence, it is important for entrepreneurs of all sizes to create a balance sheet as a required part of their accounting and tax responsibilities.

Hence, it is crucial to comprehend the purpose of this report and the necessary steps for its preparation in order to effectively manage your business.

Furthermore, it is important to mention that, alongside the balance sheet, it is essential to prepare the Income Statement (Statement of Profit and Loss).

What is the format of the balance sheet in accounting? What components make up its composition?

Now that the idea and importance of the patrimonial balance have been explained, it is crucial to grasp its organization and makeup before moving on to the development phase.

The balance sheet categorizes three primary financial components of a company.

• Could you please provide more context or the full text that you would like me to paraphrase?
• Text: Inactive
• Heritage on the internet

In the document, the assets are listed on the left side, representing the company’s goods and rights, while the liabilities are shown on the right side, representing the obligations, along with the net worth.

Sample balance sheet illustration

To gain a better understanding of how to organize the balance sheet, take a look at this example.

It is important to emphasize that the total liabilities should match the total assets.

Furthermore, the fundamental principle of the patrimonial balance in accounting is to ensure that there is equality between both sides. The primary formula that guides the financial statement is:

Active is equal to passive plus liquid inheritance.

For instance, in a company that has assets worth R $ 200 thousand and liabilities of R $ 80 thousand, the Net Equity will amount to R $ 120 thousand, maintaining equilibrium between the two sides.

What do active and passive mean in accounting? And what is net worth?

In order to fully grasp the concept of a patrimonial balance, it is crucial to comprehend the definitions of assets and liabilities in accounting, along with the components that constitute net worth.

Could you please provide more context or specific information about the text you would like me to paraphrase?

Assets are comprised of all the possessions, entitlements, and assets owned by a business that can generate economic value. This may include items such as machinery, vehicles, furniture, equipment, stocks, and accounts receivable.

The text is about the passive voice.

The liabilities consist of the company’s costs, responsibilities, and debts, such as employee wages, regular payments, taxes, and other financial obligations.

Composition of assets and debts

In the balance sheet, assets and liabilities are organized into categories or account blocks to make the report easier to analyze.

• Illiquid assets, on the other hand, are items and assets that take longer than a year to convert into cash, such as long-term investments and real estate properties.
• Circulating assets are items and entitlements that can be easily converted into cash within a year, including accounts receivable, stocks, investments, and tax refunds.
• Non-circulating assets and rights are those that take longer than a year to be converted into cash, for example, investments and real estate.

• Circulators are assets and claims that can be easily converted into cash within a year, including accounts receivable, stocks, investments, and tax refunds.
• Non-circulating items include assets and entitlements that take longer than a year to be converted into cash, such as investments and real estate.

• Non-circulating debts and financial obligations cover those that extend beyond one year, including long-term loans and guarantees.
• Circulators refer to short-term financial liabilities such as taxes, loans, and payments to suppliers.
• Not circulating: debts and financial commitments that extend beyond one year, such as long-term guarantees and loans.

• Circulators refer to short-term financial duties and liabilities, such as taxes, loans, and payments to suppliers, that need to be settled within a year.
• Not circulating: debts and financial responsibilities that extend beyond one year, like long-term guarantees and loans.

Heritage on the internet

The Liquid Heritage consists of the company’s internal assets, such as the partners’ investments, social capital, profit reserves, and any incurred losses.

In simpler terms, net worth represents the financial gains produced for members and shareholders by the end of a specific timeframe.

“What should be assessed in a balance sheet?”

One of the key benefits of the balance sheet is the ability to conduct various financial evaluations.

Furthermore, the format of this report enables a prompt assessment of the company’s capacity to meet its financial commitments.

For instance, one can assess if the amount of debts documented during the period hinders the financial expansion of the company.

Different potential evaluations of the balance sheet

One possible analysis that can be carried out using the balance sheet is determining the ratio of assets funded by the company’s equity versus those funded by external capital.

Furthermore, this examination, known as the capital structure, enables the business owner to assess whether the funds acquired to sustain the business result in expenses lower than the income it generates.

In simpler terms, the entrepreneur can determine if obtaining external resources like loans and investments will bring a greater profit to the company, or if it is better to use the company’s own resources.

How can a balance sheet be created?

So far, you have gained an understanding of what the balance sheet is, when it should be conducted, its components, and the types of analysis that can be performed based on that document.

Now, let’s detail how to create your company’s balance sheet of assets and liabilities.

First and foremost, it is crucial to recognize that accurate completion of the balance sheet requires the manager to have a strong financial grasp of the company, including organized and clearly separated documentation for each period.

Hence, prior to commencing the document drafting process, it is essential to possess the Accounting Report containing all financial records from the period under review.

How is the Accounting Report prepared?

The Accounting Report compiles all the financial transactions of the company, including liabilities, assets, and equity.

Therefore, the counter documents the information in the daily log for this purpose. This monitoring is intended to log all accounting and financial transactions, including both inflows and outflows.

Is it necessary to have an Accounting Registration?

This is a tedious and bureaucratic aspect of preparing the financial statement, underscoring the significance of having an accountant involved in this procedure.

As per the regulations of the Federal Accounting Council (CFC), all companies, except for Individual Microentrepreneurs (MEI), are required to submit an Accounting Report and record accounting and financial transactions, even those that are opting for the Simplified National Tax System.

What occurs if the company does not possess the Accounting Report and its financial records?

Not meeting these responsibilities can lead to significant issues for business owners, including:

• Preventing the distribution of tax-free earnings among the partners.
• Challenges in identifying each partner’s role in the event of the dissolution of a partnership.
• In tax procedures, tax and accounting data cannot be used as a defense.
• Inability to seek court-ordered financial restructuring.
• Challenges in assessing and tracking the financial performance of the company.

Text: What is the method for determining the key metrics on the financial statement?

Before we begin preparing the balance sheet, it is crucial to understand the calculations involved in its creation.

Furthermore, clarifying the meaning of these indicators also assists in conducting a more precise evaluation of the financial position, offering a better understanding of the company’s financial well-being.

The key factors to take into account are:

• Text: Indicators of Earnings.
• Indicators of liquidity.
• Indicators of debt.

Text: Indicators of Earnings

The income metrics that demonstrate the company’s profits consist of the Asset Turnover, Return on Assets, and Return on Equity.

The equations needed to determine each of them are as stated below:

• Statement: Asset turnover ratio is calculated by dividing sales by total assets.
• Return on Assets is calculated by dividing the net profit by the total asset.
• Paraphrase: Return on Liquid Assets: the ratio of net profit to net worth.

Text: Measures of Liquidity

The liquidity metrics pertain to the assets that can be readily converted into cash, such as:

• Text: Instant access to cash: current or circulating debts
• Current Liquidity: actively circulating / passively circulating
• Calculation for Dry Liquidity: (current assets excluding stocks) divided by current liabilities.
• Overall liquidity: (short-term assets + long-term convertible assets) / (current liabilities + long-term obligations)

Indicators of Debt

Debt indicators assist in evaluating the company’s debt level, using two primary indices.

• Level of indebtedness: Inactive / Easily accessible assets
• Indebtedness is calculated by dividing total liabilities by total assets.

How can you determine the value of liquid assets on a balance sheet?

The determination of Liquid Heritage is straightforward and can be accomplished using the formula provided.

Heritage in liquid form equals the value of assets minus the value derived from passive sources.

How to create the balance sheet in real-world scenarios (detailed guide)

Now that you have the required details regarding the balance sheet, it is now time to prepare the report. To do so, follow the steps outlined below:

1. Collect all financial assets and debts of the company, categorizing them at the point of reporting on the balance sheet to make it easier for future analysis.
2. Reconcile the accounting figures by cross-checking them with documents like bank statements and daily logs to verify the accuracy of each entry.
3. Review and reevaluate your asset accounts to make sure they accurately represent the company’s current financial status.
4. Perform the required calculations to determine if the company made a profit or incurred a loss during the analyzed period.
5. Organize your asset accounts by recording gains as positive outcomes and losses as accumulated deficits.

What is the most effective method to create an error-free balance sheet?

As we have observed, the balance sheet is a crucial document for keeping track of your company’s financial well-being. However, creating it can be challenging for individuals unfamiliar with accounting practices.

To prevent accounting mistakes that could negatively impact the company, it is best to have the assistance of an accountant throughout the entire process.

Even if you currently have an accountant managing your business, you can switch accountants anytime and enjoy the advantages of online accounting.

The professional will assist with various tax and financial matters in addition to preparing the asset balance sheet, all without requiring you to leave your company or home.

Text: Excerpt from Contabilizei’s article: Balance Sheet: What is it? Discover how to create it with examples