Dr. Marcela Bengescu, University of Piteşti
Abstract
Modern accounting functions according to its own principles and has the objective of ensuring an accurate image of the patrimony, the financial situation and the obtained result. In the present study we are determined to examine the role of the balance sheet in reaching this objective. The paper examines the accounting norms that regulate the deadlines for elaborating the balance sheets. As a result of this study, cases of identifying and rectifying recording errors with the aid of balance sheets has been exemplified.
1. GENERAL OVERVIEW
The balance sheet represents a specific procedure of the accounting method that ensures the link between the account and the components of the financial statements.
The data recorded in current accounting is centralized through the balance sheet, with the purpose of knowing the overall situation of the patrimonial elements at the end of each accounting period. Through it, we can ensure the periodical control over the accounting equality, the accuracy of the amounts recorded in accounts and in the accounting ledgers. In fact, elaborating the balance sheet is imposed by valid legal provisions. To this purpose, we mention the provision according to which: „In order to verify the correct recording of the operations performed the balance sheet is elaborated, at least yearly, upon the closing of the financial year, or at the deadlines for elaborating the periodical financial statements”6.
Consequently, the balance sheet supplies the data recorded in the annual and bianual financial statements, representing the step preceding the elaboration of the synthesis documents.
Graphically, the balance sheet has the shape of a complex table containing several columns with essential elements, such as: • the symbol and the name of the accounts in the order listed in the plan of accounts; • intial situation of credit and debit; •debit and credit modifications; •total credit and debit amounts; •debit and credit balance.
6 Legea contabilităţii nr. 82 din 24.12.1991, republicată în M.O al României, Partea I, nr. 48 din data de 14.01.2005, art. 22.
The complexity of the table is given by the special method of centralizing and grouping of all the data in curent accounting, representing a firm basis for conducting the analysis and controlling the essential aspects of the economic and financial activity of the company.
2. THE FUNCTIONS OF THE BALANCE SHEET
The importance and utility of the balance sheet stem from the functions it fulfills, of which the most significant is the verification of the accuracy of the records in the accounts.
Used by accounting experts, the balance sheet ensures the periodical control over the accuracy of the records listed in the accounts and notices the existence of the equality between the totals corresponding to each couple of elements it contains (initial debit and credit balances, total debit and credit amonts, final credit and debit balance etc.).
The structure of the balance sheet, described in the previous paragraph, creates the means necessary for the verification of the correlation between the amounts determined by the double recording.
In the context of data processing through computers, the control function of the balance sheet is performed under maximum safety, since the correlations it is based on represent the control keys used in computer programs.
We can conclude that the balance sheet represents the bridge between the analytical and synthetic accounts and between the latter and the balance sheet.
In order to reflect the overall situation of the patrimonial elements, the balance sheet performs another function: centralizing the data recorded in the accounts. From this point of view, the balance sheet represents an important source of information, used for fundamenting economic decisions. For this purpose, we illustrate the information regarding the size of the accounting profit, the size of stock, of receivables and of any kind of debt.
As a result of data centralization recorded in accounting, the balance sheet also has the function of analyzing the economic and financial activity. This function offers the possibility of comparing data from the beginning and from the end of each accounting period, cathegorized based on types and relatively homogeneous groups of patrimonial elements and also gives the possibility of an overall analysis. In this way there is a possibility of observing the changes occurred in the size and structure of patrimonial elements, thus formulating conclusions regarding patrimony management. Based on the data written in the balance sheet the calculations regarding the accomplished indicators, like production volume, income, expenditure, are fundamented.
3. STEPS IN THE ELABORATION OF THE BALANCE SHEET
In order to elaborate the synthetic balance sheets the following steps must be followed: (1) operations are transferred from journals to the Ledger by the date the balance sheet is to elaborated; (2) the amounts on the debit and the credit side of each account opened in the ledger are summed and their balance is calculated; (3) the data corresponding to the accounts opened in the Ledger is written in the balance sheet form; (4) the columns in the balance sheet are summed up and the totals established within each pair of columns (debit and credit side) must be equal.
The analytical balance sheets are elaborated as account balance situations, at the end of each month, for each of the accounts, with the purpose of ensuring the compliance between analytical and synthetic evidence.
The following steps are observed in order to elaborate the analytical balance sheet: (1) the operations are transferred from the journals to the analytical account forms opened for each separate account; (2) the amounts on the debit and the credit side of each analytical account form and its balance is established; (3) the balances are written in a table, under the name of each analytical account, usually following the alphabetical order of the name of the analytical account; (4) the balances are summed up.
The correctness of recording in analytical accounting is confirmed by the existence of the following correlation: the sum of the analytical balances opened for each synthetic account is equal to the balance of the respective account in the synthetic balance sheet.
For material goods accounts the analytical balance is elaborated under a double standard: quantity – value.
Example:
ANALYTICAL BALANCE SHEET FOR ACCOUNT 301 ”Raw Materials” 01.31.N
No. Name Quantity
- RON - 1. Cement 100 kg 1,500.00 2. Timber 50 mc 22,335.00
TOTAL 23,835.00
For the other accounts the elaboration of the analytical balance is fundamented on the money standard. In case of monofunctional accounts, the analytical balance sheets contain only debit or credit balances, correlated to the type of the synthetic account.
Example:
ANALYTICAL BALANCE SHEET FOR ACCOUNT 401 “Suppliers”
01.31.06
No. Name Balance
-RON-
1. SC Alfa SRL 15,000 2. SC Beta SA 44,565 TOTAL 59,565 Pentru conturile bifuncţionale soldurile alternează în funcţie de felul soldului analiticului în cauză.
Example:
ANALYTICAL BALANCE SHEET FOR ACCOUNT “Profit or loss”
01.31.06
Balance –RON-
No. Name
D C
1. Operational result 112,500
2. Financial result 50,150
3. Extraordinary reult 45,140
TOTAL = 112,500 – 50,150 + 45,150
=107,490 RON
4. IDENTIFYING RECORDING ERRORS WITH THE AID OF BALANCE SHEETS
In the period foregoing 1990, the main tool of accounting was handwriting.
Today, personal computers are found everywhere, either standalone or linked through networks or coordinated by a central computer. There are software packages, that supply,with ease of use and efficiency of cost, all kinds of facilities, such as accounting registry forms, balance sheets, etc.
Due to the computerized processing of data, we currently cannot question the safety and accuracy of the mathematical calculations that fundament the correlations of the balance sheets.
The errors in accounting may occur as a resut of overlooking certain operations or of incorrectly establishing the correspondence between accounts. With the aid of the balance sheet such errors can be timely identified and corrected.
With the purpose of attaining this it is necessary that the account operator perform an analysis of the data supplied by the general balance sheet, before this is listed in a definitive form.
In order to confirm the correctness of accounting records certain objectives must be pursued in order to ensure the cotrol of general and individual data. Thus, we can enumerate certain principles that are the basis for ensuring the correctness of accounting data.
Generally speaking, in the synthetic balance sheet, asset accounts must have a debit balance or be even, and liability accounts must have a credit balance or be even.
Also, income and expenses accounts must not have a balance in the balance sheet, as a result of performing the close out operations through the profit and loss account.
Individually, control is exerted regarding the compliance of the balances with the data resulting from justification papers.
In case of monetary asset accounts, the main objective is the following:
tracking the accuracy of the records in the balance sheet by comparing them to the results generated by the documents attesting this situation.
Pragmatically speaking, the controlling of monetary means consists in verifying the compliance between the balance of account 512 ”Bank accounts in lei”, from the balance sheet, and the balance of the account statement issued by the bank.
It is similar in the case of account 531 ”Cashier”, that must have in the balance sheet a balance equal to the one written in the cash registry.
In the case of the company’s receivables, the balance of the receivables account from the balance sheet must be in accordance with the data written in the justification papers. An illustration of this fact is the situation of invoices that haven’t been received yet attesting the reality of balance of account 411 ”Clients”.
In the same context, the company debts must be present in the balance sheet through the credit balance of the coresponding accounts. The size of the balances must be proved with justification documents. For example, in the case of account 401 ”Suppliers”, the credit balance must be equal to the value of invoices that have not been paid by the date the balance sheet is elaborated.
Recording errors can also be identified with the aid of the analytical balance sheets. The analysis of the situation of the analytical balances for each of the synthetic accounts is performed in order to confirm the correctness of the accounting records.
Among the pursued objectives we can mention the observance of the rules according to which for synthetic asset accounts each analytical account form must
have a debit balance or be balanced and, simetrically, for liability accounts each account form must have a credit balance or be balanced.
When the situation of analytical balances does not comply with aforementioned rules, the causes that led to such discrepancies must be established and the corresponding accounting operations must be performed.
We can exemplify the calculation errors for the materials accounts. The incorrect quantification of the consumption, by overestimation, may lead to credit balances, although naturally, material values cannot diminish with more than their value.
Therefore, credit balances in material values accounts can be determined by the incorrect recording of entries. For example, if the entry of spare parts was recorded in the debit of account 371 ”Merchandise”, and the consumption is highlighted by crediting account 3024 ”Spare parts” it is only natural for credit balances to appear in the analytical accounts where entries did not occur.
Also, in case of liability accounts such as account 401 ”Suppliers”, the occurence of analytical accounts with a debit balance can be explained by overlooking the recording of some entry-reception notes, by the incorrect recording of certain payments, which actually correspond to fixed asset suppliers or regard the advance payments forwarded to them.
In case of receivable accounts the occurrence of credit balances proves errors in recording debits or inflows, in most cases having consequences on the quantum of the company’s fiscal debts.
In the present paper we did not set a goal of elaborating a complete list of aspects in which the balance sheets prove their utility in identifying recording errors. It would be impossible to accomplish such a feat, since cases are extremely specific, being influenced by the characteristics and complexity of the company’s activity.