Why do assets equate to liabilities plus equity

Assets Liabilities

Assets / Liabilities: What You Should Know About Both Sides of a Balance Sheet

If your company is subject to accounting, then you should be aware of the basic structure of such a balance sheet. The key terms here are Assets and liabilitiesthat denote the two sides of the balance sheet. Everything you need to know about it can be found in the post below.

Which companies have to make a balance sheet?

Whether a company is required to be accounted for or not generally depends on the factors of turnover, profit and the legal form. Corporations, such as the GmbH or the AG, are usually required to be accounted for. For tradespeople, there is currently a limit of € 600,000 in sales or € 60,000 in profit, and if this is exceeded, a balance sheet is required. Freelancers are generally exempt from accounting, even if they exceed these limits.

The division of the balance sheet into assets and liabilities

The special thing about a balance sheet is that it is divided into assets and liabilities. The assets are on the left; on the right-hand side of the balance sheet you will find the liabilities accordingly. Each page shows all assets available to the company, but in different ways: The liabilities page shows the origin of the assets, the assets the use of the assets. The sum of the assets therefore also corresponds to the sum of the liabilities.

The assets in detail

The positions on the assets side are not arranged arbitrarily, but according to their liquidity: the more “liquid” a position, i.e. the easier it can be converted into cash, the lower it is. In addition, the asset items are divided into fixed assets and current assets. Fixed assets include, for example, land, machines, vehicles and the so-called BGA (factory and office equipment). Current assets are made up of items such as raw materials, produced goods, open receivables, cash on hand and bank assets.

The liabilities in detail

The arrangement of the liability positions follows the same system as for the assets. And here, too, there are two main categories: equity and debt. Items such as subscribed capital, capital reserves, profit or loss carryforwards and the annual surplus are brought together under equity. In the case of outside capital, however, there are mortgages, loans and liabilities.