Balance Reformation

Reforming the balance sheet is a procedure that takes place annually, especially in large companies and corporations, by the decision of the board of directors. Its purpose is to establish the final financial result for the last year. This is done on the basis of a comparison of the figures for the revenue and profits received and data on the use of funds.

Reforming the balance sheet is a process that can only be carried out if there is an appropriate permit or order from the authorized person. As a rule, a board of directors convened annually, through a general vote, approves a representative or investors to resolve issues directly at the meeting.

Balance Reformation: Postings

So, first of all you should familiarize yourself with the accounting entries compiled by the specialist of the enterprise. Of particular interest is the 80th account named "Profits and Losses", as it concentrates amounts reflecting the flow of funds and their referral to one or another of the needs. Accordingly, on the credit side there is a loss of financial resources, and on the debit side - their inflow in the context of sources. It becomes clear that the position of the company at the reporting date largely depends on the balance of this account.

After it was decided that the balance should be reformed, the accountant, based on the desires and requirements of the management team, distributes profits. Most of it is intended for owners, it is divided into shares in proportion to the amount of investors' deposits. If, as a result of this operation, a surplus is formed, then it is attributed to a special account for 88, which is named "Retained earnings of previous years". Then this amount is partially sent to reserve accounts to cover unforeseen expenses.

At present, not all enterprises believe that the reformation of the balance sheet is an important and necessary element in accounting practice. However, this procedure really helps the management team to visually show investors and owners how much money they receive from the company's operation and where other resources are distributed. In this regard, we can conclude that the Reformation is an effective mechanism, which does not lose its relevance at all times.

In this area, there are also disadvantages and difficulties. The procedure itself is not a supercomplex scheme requiring the investment of forces and time. Often problems arise due to illiterate accounting. Often, the "stumbling blocks" are mistakes made at the time of closing the accounts and summarizing. In order to avoid such significant errors, companies should pay special attention to the audit of financial documents. Qualitative and timely verification will increase not only the productivity of the work, but also the degree of trust from the inspection services.

First, it is necessary to finally approve the annual financial statements, then the balance can be reformed, during which the profit of the previous reporting period is written off and other accounts are closed. The undistributed balance will go to cover the losses of previous years. The economic meaning of this procedure is a small improvement in the balance sheet. In the future, it will be easier to work with such a document, since all the necessary postings have been made, and the accounts have been closed.

A legal entity has the right to choose a specific way of carrying out the reformation, having previously noted the method in the documents. In addition, this process requires no less accuracy and literacy from a specialist, since third-party audit organizations also carefully check the formatted balance.