Balance sheet: definition and structure

The French balance sheet follows the General Chart of Accounts (PCG) and is presented in 2 columns:

ASSETS column (left) — what the company owns, ordered from least liquid to most liquid:

• Fixed assets: goodwill, patents, machinery, vehicles, computers. Long-term (> 1 year).
• Inventory (current assets): merchandise, raw materials, finished goods.
• Accounts receivable: invoices issued but not yet collected.
• Cash and cash equivalents: bank accounts, petty cash.

LIABILITIES column (right) — how it is funded, ordered from most permanent to most payable:

• Equity: share capital + reserves + retained earnings + current year’s profit.
• Provisions: for risks (disputes, warranties), expenses.
• Financial debt: bank loans, shareholder loans.
• Accounts payable: invoices received but not yet paid.
• Tax and social liabilities: VAT, URSSAF, corporate tax due.

Fundamental equation: Total Assets = Total Liabilities (always, to the euro). If unbalanced, there is a posting error.

Reading 1 — Financial strength: Compare equity vs total balance sheet. A ratio < 20% = undercapitalised company (vulnerable to shocks). > 40% = strong.

Reading 2 — Available cash: Net cash = Cash at hand − Bank overdrafts. Must cover at least 1 month of current expenses to avoid insolvency.

Reading 3 — Operating cycle: Accounts receivable vs accounts payable. If you pay suppliers before collecting from customers (receivables > payables), you are financing your customers from your own cash — this is the working capital requirement (WCR) to monitor closely.

The balance sheet should always be read alongside the income statement (the year’s profit appears in equity under liabilities) and in comparison with the previous year (changes = signals). Good business management software generates these readings automatically, without waiting for the accountant’s closing.