Balance sheet account
An asset account is a central element of double-entry bookkeeping. It records the individual asset and liability items
of a company and thus forms the basis for the balance sheet.
What is a balance sheet account?
A balance sheet account records asset and liability items on the balance sheet on a specific date. It thus reflects the
current "balance" of an account – in contrast to income statement accounts, which show changes over a period of time
(expenses and income).
Balance sheet accounts are opened at the beginning of the fiscal year with the opening balances from the opening balance
sheet and closed again at the end of the year via the closing balance sheet. The balances recorded in these accounts are
entered directly into the balance sheet.
A distinction is made between:
- Asset accounts (use of funds): e.g., property, plant, and equipment, inventories, bank, cash, receivables
- Liability accounts (use of funds): e.g., equity, liabilities, provisions
In Italian financial statements, the balance sheet accounts reflect the individual items of the balance sheet that must
be reported in accordance with the provisions of the Civil Code and the accounting rules of the OIC principles
(see lexicon entry "Balance sheet in Italy").
Examples of balance sheet accounts
Asset accounts are divided into fixed asset accounts and current asset accounts:
- Fixed assets (tied up in the company for the long term):
- Tangible assets, e.g., buildings, machinery, office equipment
(see glossary entry "Depreciation (ammortamento)")
- Financial assets
- Current assets (available in the short term or intended for sale):
- Inventories (goods, raw materials)
- Cash / bank
- Trade accounts receivable
- Other receivables
Liability accounts are divided into equity and debt capital:
- Equity:
- Subscribed capital / share capital
- Other equity (e.g., retained earnings, reserves)
- Debt capital:
- Shareholder loans
- Liabilities to suppliers
- Tax and social security liabilities
- Other liabilities
Together, these balance sheet accounts form the structure of the balance sheet and show how the company is financed
and how its funds are used.
Significance for entrepreneurs and HR managers
A basic understanding of balance sheet accounts is important for decision-makers in the company. It helps to:
- manage liquidity
Bank, cash, and short-term liabilities show how much financial leeway is currently available and what payment
obligations are due in the short term.
- plan investments
Asset accounts, depreciation, and any leases provide information about how much the company has already invested
and what financial impact new investments may have.
- better classify personnel decisions
Wage and salary liabilities as well as provisions for severance pay/TFR reveal what long-term obligations exist
towards employees (see glossary entry "TFR – Severance pay in Italy").
- prepare for financing discussions
Balance sheet accounts form the basis for key figures such as the equity ratio or debt ratio, which are particularly
important for banks and investors.
The balance sheet accounts thus provide the "raw data" for key balance sheet ratios, which play a decisive role in
practice in credit negotiations, credit checks, and subsidy applications, among other things.