Have you ever translated a balance sheet? Pretty
dull stuff. Intellectually unrewarding. Once
you have translated one you have translated
them all. Or so most people think—but I strongly
disagree. Lots of repetition and near-repetition,
yes. But I see this as a plus, not as a minus.
Repetition gives me more chances to try different
approaches and solutions; near-repetition gives
me a chance to fine-tune solutions that reflect
the minute differences between expressions that
are almost the same—but nevertheless different.
The Accounting Equation
When I joined a CPA firm as a staff translator
way back in 1970, I thought assets equaled liabilities
because balance sheets were cooked. Now I know
that assets do not equal liabilities.
In fact, the basic accounting equation (equação
contábil) is
- assets = liabilities
+ owners' equity (ativo = passivo + patrimônio
líquido)
What this equation means is that if a company
(or an individual, for that matter) sells everything
it owes (assets) and pays off all of its debts
(liabilities), the remainder, if any, is what
the owner(s) actually own, their equity in
the company.
This very simple equation poses some very interesting
terminological questions, both in Portuguese
and in English.
To each his/her own
First, we have owners' equity. The owners'
used as a modifier indicates that somewhere
there is some type of equity belonging to parties
other than the owners themselves. Indeed, an
old copy of the respected Accountants' Handbook
divides balance sheet accounts into assets
and equities—and further divides
equities into owners', creditors'
and non-stated (here meaning government).
Later editions of the same book refer to assets,
liabilities and owners' equity in
the modern way. Today, equity account
is a synonym for owners' equity account.
All this to explain that owners' equity
is the owners' cut of the company's assets.
Creditors and the government keep
the remainder—although nobody calls it equity
any longer.
Or, to be a bit more precise, it is the other
way round: first, creditors and the government
claim and get their cuts and then the owners
keep the remainder, if any. This is borne out
by the older Brazilian terminology, in which
the entire right-hand side of the balance sheet
was called passivo and the passivo
was further divided into exigível
and não exigível. Exigível
means liabilities toward the government
and other creditors, items that those creditors
could claim (exigir). Não-exigível
means the owners' cut, which can not possibly
be claimed by the owners themselves. The current
Business Corporation Act (Lei das Sociedades
por Ações) uses ativo /
passivo exigível e patrimônio líquido,
but não-exigível is
still often used for owners' equity.
Patrimônio líquido poses a
different problem. Líquido (net) as
opposed to what? To bruto, total (gross,
total), of course. Now, patrimônio
does not translate liabilities, so
what does patrimônio bruto mean?
In practice, the term is never used, but the
concept is clear: Patrimônio bruto
(or total) is assets. So that
the equation could—although in practice it is
not—be stated as
- patrimônio
bruto – exigibilidades = patrimônio
líquido.
That is why balance sheet accounts are contas patrimoniais in
Brazil.
Realize & liquidate
Asset accounts are classified in the order
of their liquidity. We begin with cash (caixa),
which is money at hand, and, for all practical
purposes, items of several types known as cash
equivalents, or near cash (equivalentes
a caixa) that can be converted into cash
within a very short period. The technical terms
for "convert into cash" are liquidate,
realize (liquidar, realizar). To liquidate
/ realize an asset (liquidar / realizar um ativo)
means to convert it into cash. So we talk
about liquidity (liquidez). Real estate
has very low liquidity, meaning that usually
you can not sell that great condo and cash in
the proceeds overnight. Brazilian stores often
run liquidações, meaning
sales at lower-than-usual prices to liquidate
excess inventories within a short time period,
or what is called a plain sale in
the U.S.
What has already been fully liquidated is ready
cash. This was formerly called disponível
("available [cash]") in older
balance sheets. Disponibilidades (Brazilian
gobbledygook has a passion for abstraction)
is used in the current Act (Article 179), but
as a part of the ativo circulante (current
assets).
What do Circulante and Realizável
mean?
Fortunately, circulante and current
mean "realizable or maturing within
one year". Under the previous S. A. Law
a curto prazo meant "realizable
or maturing within six months" and that
was a nightmare. But that was a long time ago.
The opposite of disponível is
realizável, meaning items that
can be realized. This poses several problems
to the translator. A possible translation for
realizável is receivables and
it will be a very satisfactory solution most
of times. Valor demonstrado no realizável
can often be translated simply as as
a receivable, and that is that. However,
technically speaking, realizável includes
inventories, and inventories are not
receivables. So, in certain cases, receivable
won't do. Other possibilities for realizável
are assets other than cash, which
has the defect of being too comprehensive, because
it would include fixed assets too. Please, refer
to the introduction to this article and notice
that I said I have tried many solutions, but
never said I had found The Perfect Solution.
The opposition between disponível
and realizável is still considered
important and the terms often used, but it is
no longer shown in balance sheets.
Realizável a longo prazo roughly
speaking is long-term receivables—no
inventories here to spoil our translation.
Ativo fixo and ativo permanente
Then, of course we have the blessed
ativo permanente. This dates back to
the Business Corporation Act of '76 and is not
the same as ativo fixo. I have often
had a chance to deal with this, which in fact
constitutes one of my favorite translation issues,
but I can not resist the temptation of coming
back to it once more.
Ativo fixo reflects what used to be called
fixed assets and is now referred as property,
plant and equipment, although nine out of
ten CPAs will refer to fixed assets when
they have reason to believe nobody is listening.
Property, plant and equipment applies
to industrial companies, as you know. Service
enterprises, being devoid of plants, have something
that usually goes by the name of premises
and equipment. But ativo permanente includes
both imobilizado (fixed assets), investimentos
(fixed investments) and ativo diferido
(deferred charges). I usually cross my fingers
and translate ativo permanente as "permanent"
assets and pray that the general layout
of the balance sheet will help a foreign reader
understand what it is. In fact, under Law 6404/76,
permanente reflects assets subject to
correção monetária (indexation).
That, of course, does not help me very much.
The other side of the picture
The other side of the balance sheet is the
passivo, or, more formally, passivo
e patrimônio líquido, but we
have already covered that. In English, there
is also a lot of oscillation between liabilities
and liabilities and shareholders' equity
also, so no problem here. Passivos may
also be circulante or a longo prazo,
something that should not surprise anybody.
The last group of accounts, of course, is
patrimônio líquido, variously
referred to as shareholders', stockholders',
partners', members' or owners' equity
in English. Owners, of course, is the
most general term and thus seldom used. Partners
are the owners of a partnership, of course,
members are the owners of a Limited Liability
Company, shareholders or stockholders
are the owners of a business corporation.
In U.S. English, shareholders and stockholders
are synonymous.
Do you still have a minute for me?
I hope so, because I would like to mention
the matter of debits and credits.
A debit (débito) is an addition
to an asset account—or reduction in a liability
account. A credit (crédito) is
a reduction in an asset account—or an increase
in an asset account. Because a debit is an increase
to an asset account, we have colloquial synonyms
such as charge (carregar), which you
will see from time to time. To credit, on the
other hand, is often referred to as release
(descarregar). Do not use those colloquialisms
in your translation though. Their distribution
in English and Portuguese are different and
your client may smile when you use carregar
for charge, when the more formal
debitar would be appropriate in Portuguese.
When the Ye Bookshoppe finally receives a check
from X. Layter, in payment of some dictionaries
bought on credit, the store's cash (caixa)
account increased by the amount of the check
and accounts receivable [X Layter] (contas
a receber [X Layter] is reduced by the same
amount.
This is shown in English as
Dr. Cash $100
Cr. Accounts Receivable $100
meaning that cash is charged for a hundred bucks,
and accounts receivable is credited for the
same hundred bucks. This system is called double-entry
bookkeeping (contabilidade por partidas dobradas).
It is practically universal these days,
but there as certain differences of detail.
For instance, in Brazil, the same transaction
would be described as
Caixa R$100
a Contas a Receber R$100
notice the "a" and the
different formatting of the entries.
After doing this, the Bookkshoppe's bookkeeper
sends the customer a nice message saying
We have credited your account for $100. Thank
you.
This should help you understand how debits
and credits work