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balance-sheet

How to establish and analyse a balance sheet?

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Welink Accountants

A trial balance is similar to an accounting and financial analysis of your business. It brings together the data required for your company's balance sheet.

 

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Summary:

 

  1. What is a trial balance?
  2. A control and management tool
  3. How to establish an accounting balance?
  4. Mandatory components of a balance sheet
  5. The components of a general scale
  6. The components of an auxiliary scale
  7. How to read and analyse an accounting balance?

 

1. What is a trial balance?

An accounting balance is a document that brings together the accounts of a company, in this case: the balance sheet accounts and the management accounts.

 

A summary table of the company's accounts over a period of time.

 

The accounting balance is a table showing all the accounts of a company over a given period of time. It details the accounting and guarantees the accuracy of the income statement. The table discusses the credit and debit balances over the period of the accounting period in order to identify their totals.

 

The scale is divided into three categories:

  • general accounting balance

  • auxiliary balance

  • elderly balance

The general balance brings together the accounts from class 1 to class 7 (the balance sheet, expense and income accounts of the company's General Chart of Accounts).

 

The sub-balance concerns the accounts receivable and payable. The final balance draws its information from the sub-balance in order to identify receivables, payables and settlement dates.

 

2. A control and management tool

A table is a management tool, insofar as it allows the audit of the accounts and highlights any anomalies over a given period. It ensures consistency between all of the company's existing accounts. It also facilitates the declaration and payment of VAT, as information relating to taxes is specified therein.

 

It highlights the general financial situation of your company. It compares budgetary data from one year to the next. The comparison makes it possible to notice the variations in your account over the current financial year.

 

3. How to establish an accounting balance?

The establishment of a balance of accounts requires the use of accounting software. The task promises to be easy, as long as you have all the keys in hand. Before considering setting it up, make the accounting entry (the entry in accounting terms of the operations that concern your company's assets).

 

You should also prepare all the work involved in auditing the accounts to ensure that your accounting complies with the regulations in force. Check the updating of the general ledger, mentioning all your current accounts.

What are the components of a trial balance?

The analytical accounting balance provides an overview of the accounts in motion, it is made up of a variety of elements relating to debit-credit and account balances.

 

4. Mandatory components of a balance sheet

The summary table classifies the edited accounts chronologically. It indicates:

  • the account number

  • the name of the account

  • the total debits

  • the total credits

  • the account balance: debit or credit balance

 

The account balance will show the debit balance if the total debits exceed the total credits. Otherwise, it will show the credit balance.

 

5. The components of a general scale

The overall accounting balance shows the company's accounts. It follows the order of the General Chart of Accounts, in other words, it follows the accounts from class 1 to class 7. The table announces: 

  • the account number

  • the name of the account

  • total credits

  • total debits

  • the balance of each account

 

These elements make it possible to clarify the balance of each account, whether debit or credit.

 

6. The components of an auxiliary scale

The sub-balance sheet shows the accounting data for accounts receivable (account 411, in class 4, showing the amounts invoiced but still paid). It also shows the accounts payable (account 401, class 4, representing your company's debts to your suppliers). The document contains:

  • the account number

  • the denomination

  • the opening balance

  • the balance at the end of the period

  • total debits

  • total credits

 

This data will make it easier to recall debts and receivables, as well as payment deadlines (15, 30 or 60 days), in the context of the aged balance.

 

7. How to read and analyse an accounting balance?

The accounting client balance facilitates the accounting and financial management of your cash flow, but you still need to master its reading and analysis techniques.

 

Reading the 5 columns

The table of the accounting balance recovery is divided into 5 columns:

  • the first one indicates the number of the accounting account

  • the second indicates the name of the account (in accounting jargon)


  • the third shows the total debit transactions of the account

  • the fourth explains the total of the account's credit movements

  • the last provides the balance of the accounting account (precisely the difference between the 2 previous columns)

 

The numbers in the fifth column are preceded by a minus sign in the case of a credit balance. In all respects, the accounts are organized from the smallest to the largest.

 

Analysis of the accounting balance

The list focuses on purchases and sales, including your company's receivables and payables over a defined period of time. During your analysis, you should focus on the most significant movements (credit or debit movements).

 

Compare the balances of the current period with those of the previous period. Then identify the variations and try to understand the differences.

 

There is a fundamental mechanism for analyzing the accounting balance: the double-entry principle. The concept boils down to the correspondence between the total amount of the debit column and the total amount of the credit column.

 

The equality of the amount between the two sections underlines the balance of the accounts. This game of symmetry allows you to appreciate the accounting life of your company and its financial situation in real-time.

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