In this post, I outline some common balance sheet terminology.
What is a Balance Sheet?
A balance sheet (un balance) is one of the most important financial statements used by an accountant or a business. It can be described as a snapshot of a company’s financial situation in a given moment.
A balance sheet is divided into two parts. These two parts must balance each other out or equal each other. The main formula of a balance sheet is always the same:
Assets = Liabilities + Shareholders’ Equity
Or in Spanish
Activo = Pasivo + Patrimonio
Let’s look at what these different terms mean.
Assets (activo). An asset is something that generates profit for a company. A current asset (activo circulante) is
an asset that has a lifespan of a year or less and can be easily converted into cash. The most famous example of a current asset would be cash (efectivo).
A non-current asset activo fijo is an asset that is not turned into cash easily and/or has a lifespan of more than a year.
Non-current assets can be tangible (tangible),
for example computers, machinery or a building or intangible (intangible), for example software or know-how.
Liabilities (pasivo). Liabilities are the debts owed by a business. They can be divided into current liabilities (pasivo a corto), which are debts that have to be paid back within a year and non-current liabilities (pasivo a largo), which are debts that don’t have to be paid back immediately.
Working capital (fonda de maniobra). Working capital is the capital available to a company for daily operations at a given moment in time. It is a company’s current assets minus its current liabilities.
Here is a sample balance sheet which shows these concepts clearly.
BALANCE SHEET as at 7th December 2019
Below are some of the terms found in the balance sheet and their translation.
Accounts payable = Cuentas a pagar
Accounts receivable = Cuentas a cobrar
Accrued wages = Salarios devengados
Cash = Efectivo
Computer equipment = Equipamiento informático
Furniture & Fitout = Mobiliario y equipo
Income tax = Impuesto de sociedades
Interest payable = Interés a pagar
Inventory = Existencias
Leasehold = Alquiler
Loans = Préstamos
Petty cash = Efectivo para gastos menores
Prepaid expenses = Gastos pagados por anticipado
Renovations/improvements = Mantenimiento y reparaciones
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Balance Sheet Terminology