Balance Sheet Equation Uk Balance Sheet Reflects The Accounting Equation Accounting Equation Balance Sheet Format Balance Sheet Equation Format Balance Sheet
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They are the positive side of your Balance Sheet but the real picture of how much gold you have in your Fort Knox is your Net Worth. So just as important to your Balance sheet is your Liabilities. The total of your Liabilities is subtracted from the total of your Assets to give you your Net Worth. You fill out your Balance Sheet and total up your Assets and Liabilities. You subtract the total of your Liabilities from your Assets. That number your Net Worth will come out to either a negative amount an amount of or near to zero or it will be substantially positive. These are the only 3 scenarios possible. • If your net worth is a minus number you are not managing your financial resources properly. Your Balance sheet is your report card and you are failing. It is that simple.
Non-current assets therefore contains all resources owned by the company that have a useful life of more than one year. These assets are often referred to as Capital Assets which include equipment buildings and land. Notice that all assets mentioned thus far whether current or non-current can be classified as Tangible Assets which contain physical substance. However the balance sheet also presents Intangible Assets which are reported as non-current capital assets as well since they have a useful life of more than one year but do not have any physical substance such as goodwill and patents. The sum of the current and non-current assets will equate to and be reported on the balance sheet as Total Assets of the company. Liabilities: represents the claims against the company s assets that have not been paid at the balance sheet date. Therefore they are obligations to the company s creditors.
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To many non-financial people the balance sheet does not make sense in any case so they gravitate to the only report that is an easy read namely the income statement. Assets and liabilities are just too complex to grasp. In the last ten years or so this has changed so much so that readers and users are advised to lend substantially more credence to the balance sheet than the income statement. This "discrimination" exacted on the income statement is so severe that some investors are encouraged to even ignore the income statement as a whole. Why is this so? It could be the fiddling with revenue figures by many now defunct corrupt corporations which reported highly profitable figures whilst these businesses were heavily indebted (liabilities) or technically insolvent. Moreover high revenues are no guarantee against bankruptcy. Historically an income statement was drawn up first and the balance sheet second. The balance sheet became the "rubbish bin" for all items that could not balance the books.