Equity and liabilities (passiva)
The passiva (equity and liabilities side of the balance sheet) show how the assets are financed: with equity, provisions and liabilities. The total equals the assets.
What do passiva mean?
The passiva (equity and liabilities side of the balance sheet) show how the assets are financed: with equity, provisions and liabilities. The total equals the assets.
Passiva are not only liabilities. Paid-up capital, reserves and result also stand on this side. The distinction between short and long term helps assess affordability.
How does it work?
The equity and liabilities side of the balance sheet shows what the assets were paid with. art. 2:364(4) DCC prescribes four groups: equity, provisions, liabilities and, insofar as not shown under liabilities, accruals and deferred income. The order runs from the shareholders' capital to what the company owes or still has to spend.
Equity is split according to art. 2:373(1) DCC, from issued capital to undistributed profit. Provisions cover uncertain obligations or spread future expenditure over several years (art. 2:374(1) DCC). For liabilities you state which part runs longer than a year and, for the total, which part runs longer than five years (art. 2:375(2) DCC).
Example
A BV has a balance sheet total of € 100.000 at 31 December. On the equity and liabilities side stand: paid-up capital € 1.000, other reserves € 24.000 and profit for the financial year € 15.000, together € 40.000 of equity. In addition a warranty provision of € 5.000, a bank loan of € 35.000 of which € 7.000 is repaid within a year, and € 20.000 of trade payables and tax liabilities. Check: 40.000 + 5.000 + 35.000 + 20.000 = € 100.000. Non-current is € 28.000; current € 7.000 + € 20.000 = € 27.000.
In the annual accounts
Credit side of the balance sheet, all size classes.
Difference from debt capital
Debt capital is the part of the passiva outside equity: liabilities and provisions. Not everything in it is a debt to a third party; a maintenance provision spreads your own future expenditure. Whoever equates passiva with debt capital counts the shareholders' capital as debt: in the example € 60.000 is debt capital, not € 100.000.
Common mistakes
- Treating equity as debt
- Leaving a short-term repayment under long-term debt
What to watch for
- Reconcile equity with the previous balance sheet: opening balance plus result, less distributions, plus payments.
- Micro entities may show equity and liabilities each in one item, with the liabilities split into up to and longer than one year (art. 2:395a(4) DCC).
- Small entities split equity according to art. 2:373 DCC, but show liabilities without a breakdown by type (art. 2:396(3) DCC); medium-sized and large entities also specify the types of liabilities.
- Negative equity stays on the equity and liabilities side.
Legal basis and source
art. 2:373–375 DCC
Frequently asked questions
Why are assets and equity and liabilities always equal?
Every asset is financed by something. The passiva show that financing, so their total equals that of the assets; a difference points to a bookkeeping error.
Is profit a passiva item?
Yes. The result of the financial year belongs to equity and stands on the equity and liabilities side until it is distributed or added to the reserves.
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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