A balance sheet total is the sum of all assets and the sum of all liabilities of a company. The total assets are an important part of the balance sheet, which can provide information about the size of a company.
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Definition / explanation
The one from the Accounting The term `` balance sheet total '' comes from the total of fixed and current assets on the assets side and equity and debt capital on the liabilities side.
According to the balance sheet equation, the sum of all assets must always be the same as the sum of all liabilities, since both sides of the balance sheet are balanced by equity.
The balance sheet total is an economic key figure that is used as the basis for calculating other key figures.
What is active exchange / passive exchange?
An asset swap is a process in which certain balance sheet items are reassigned within the assets side. One asset decreases, another increases. In doing so, the balance sheet total is neither minimized nor maximized.
If the positions within the liabilities side of the balance sheet are rearranged, however, one speaks of a liability swap. An example of this constellation would be the conversion of a liability into a loan.
Balance sheet extension and balance sheet shortening
The balance sheet total only changes when one item on the assets and one on the liabilities side is changed. If both the assets and liabilities increase, this process is called a balance sheet extension. In this case, the balance sheet total also increases.
However, if balance sheet items on the assets and liabilities side are reduced by the same amount as a result of a business transaction, then this is called a balance sheet reduction. The balance sheet total will therefore be smaller overall.
Balance sheet total as a measure of size
The Commercial Code differentiates between different forms of corporations in Section 267 of the German Commercial Code. The HGB knows small, medium-sized and large forms of this type of company.
The law cites total assets as a decision criterion for which of the three categories the corporation is classified into. This classification can result in, among other things, legal benefits. Conclusions can also be drawn about the size of the company with the help of the balance sheet total.