4.6 A balance sheet⁶⁰ is the summary of the stock accounts.

1. "Bilan" comes from the Italian bilancio " balance".

In all the balances of amounts recorded for an entity, the balance sheet is, on D-Day, the summary of the inventory accounts, with on the one hand those of financing, or liabilities, and on the other hand, those of investment, or assets.

The historical part of the article "Accounting" of the Dictionnaire encyclopédique Quillet states, in its 1953 edition (the bolding is my doing):

"The first treatise is by Luca Pacioli (1494) (Tractacus de computis Scripturis), for whom balance means balance. There is the double part⁶². In 1594, the Belgian Dashier Goessens established the principle of the inventory. In 1605, a Dutchman, Stevenin, showed the necessity of the annual balance sheet and established the rules of the inventory. In 1675, Savary published The Perfect Merchant, a book that has never been surpassed. In the 18th century, accounting made no progress. The large enterprises relied on the central power and the sovereign authorized them to violate the rules of accounting. This regime aroused such criticism that during the Revolution, public opinion demanded the elaboration of practical and precise provisions. The French Commercial Code of 1807 laid down the regime applicable to enterprises⁶². The Minister of the Treasury, Mollien, imposed a double share on the public finances; it revealed numerous deficits and falsifications. Since then, accounting techniques have progressed in parallel with the development of trade. »

2. A ratio summarizes the principal of an entity's financing structure.

The numerator of this ratio is the amount of funds not borrowed. Its denominator is the total amount of the financing stock. What it measures is a degree of independence as well as resistance to economic downturns. Competition based on the comparability of offers plays an irreplaceable role. But the degrees of financial independence of enterprises substantially configure the course of business. Expecting competing offers to have the same controlling effects, regardless of debt levels, is very unrealistic.

3. An entity's stock of financing, in other words the liabilities on its balance sheet, can almost always be reduced to two masses by the criterion of the duration of the financing.

One of these masses is that of class="bookmarklink" data-bookmarklink="FinancementNonEmprunte">permanent financing and debt with a maturity of more than one year. The other mass is that of financing with a maturity of less than or equal to one year or payable at any time (overdraft). Accounting href="http://www.Comptabilite_Plan_Comptable.com/ \h">standardization favors the estimation of these two assets. One of its rules is, in fact, the classification of the liabilities headings in order of exigibility. The first mass is often said to be that of "permanent capital" (an unfortunate name, we will see later why) and the second that of "short-term debts" or name="Comptabilite_Passif_d_Exploitation">operating liabilities.

4. An entity's investment stock, i.e. the assets on its balance sheet, can also almost always be reduced to two masses by the criterion of the duration of the investments.

One of these masses is that of investments for a period of more than one year, the other for a period of less than or equal to one year. The classification of asset headings in ascending order of liquidity facilitates the determination of the amounts of these assets.

5. Several pairs of expressions are used to designate the two types of investments.

The most widely used in economic theory and financial analysis have so far been the pairs of fixed capital/ circulating capital or fixed assets and current assets, or "net fixed assets/ going concern values". These designations should not make us forget that in enterprises, all the assets participate in the maintenance of the flow of sales. Here the ratio between sales and total assets constitutes a stock rotation, a rotation that I will show later is a measure of productivity.

6. The difference between financing and investments with a maturity of more than one year constitutes working capital.

The difference constitutive of the working capital (FDR) is by definition equal to the difference between investments and financing with a duration of less than or equal to one year. To say that this additional difference is the "working capital requirement" (WCR) is often misleading. A decrease in the BFR does not result in an increase in the FDR. The rationale for a positive FDR is the same as a high ratio of financial independence.

7. The benefits of business-to-business spot trading are massive.

But the less business-to-business trade is in cash, the more what this state deprives it of is silenced. It considers that the search for the longest payment terms is part of the normal laws of commerce. So the FDRs are calibrated accordingly, which makes insolvencies more contagious. Employment suffers as a result.