Balance Sheet Vs Income Statement Balance Sheet Vs Income Statement Approach Sample Balance Sheet Income Statement And Cash Flow Statement Balance Sheet Vs
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In addition the basic formula for accounting is Assets = Liabilities + Equity and any US balance sheet will be organized into exactly three sections with at least two subtotals for assets and for liabilities and equity. Using the basic algebra that we learned in Ms. Arithmatic s 6th grade class we can shrewdly deduce that the two subtotals must be exactly equal. So far no problem because if your balance sheet doesn t balance then you have much bigger problems then simply worrying about understanding your financial records. How Assets Are Valued Great! you re thinking let s start with the assets! Well I love an enthusiastic learner and so I will oblige. To put it very briefly assets are the total of everything your business has that has some sort of value to the business.
You should be able to recover much faster than you would have in your undisciplined youth. • If you have a positive net worth that means that you are building assets. Just as important is that you are controlling your debt. This is the key that has probably gotten you to this situation. The key to a positive Balance Sheet is that debt offsets the value of your assets when you look at your personal finances as a complete picture so your debt/equity ratio should be less than one and get smaller and smaller. Debt servicing saps cash flow on your budget that could be used to build assets that can be used to produce income in your retirement years.
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If you want the exact answer to just about every accounting question then it is there for you for free but in techno-accountant babble at asc.fasb.org. However most of you don t want to do all that work you want a quick and easy rule of thumb that works 90% of the time without you having to leave this article and that is exactly what you will get. The key here is conservatism we are much more worried about overvaluing an asset then we are at undervaluing. Therefore the rule of thumb is that assets are valued at the lessor of cost (what you paid for it) or fair market value (what you could get if you sold it right now).