Balance Sheet Definition 19 Balance Sheet Definition
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Your assets are tangible items such as cash inventory buildings land and equipment as well as investments prepaid expenses and money owed to you (accounts receivable notes receivable etc.) On a balance sheet assets are listed in groups based on their liquidity. Liquidity is a measure of how quickly these assets can be converted into cash sold or consumed. Current assets - assets that one can reasonably expect to be converted into cash within a year (e.g. accounts receivable) or can be converted into cash on demand (e.g. stocks) are listed first on the left-hand side and then totaled. Fixed assets follow next - fixed assets are expected to be around a while and persist - these include buildings vehicles and equipment. Finally total assets are added-up at the bottom of the assets section of the balance sheet. Liabilities reflect all the money your business owes out to others.
There are 3 tools that folks can use to manage their personal finances. They are a personal life plan a personal budget and a personal balance sheet. When these tools are identified to folks most acknowledge a life plan but do not really have one. Most know and try to have a budget...sort of. However an amazing number of people have no idea what a balance sheet is. So here are the basic things you should know about a balance sheet. Why should I have a balance sheet? A balance sheet is where you keep track of how much you own and how much you owe and the difference between the two. You take the value of your assets (what you own) and subtract the value of your debts (what you owe) to get your net worth. You should know what your net worth is at any given time.
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The Personal Balance Sheet is ignored and the Budget is the darling of Financial Consultants and the media. The key to understanding personal finances is that you have to understand your Budget and Balance Sheet individually and also how they work in combination to give you a complete snapshot of your personal finances. Your balance sheet is extremely important because it shows you where the gold is. It is your personal Fort Knox. It is also extremely important because you need to have a stash of gold in your personal financial picture. The gold in your Balance Sheet is not the Assets.