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Long-term liabilities (non-current) found on the balance sheet include long-term bank loans and notes payable. The creditor s claims against the assets can be seen by examining the fundamental accounting equation stated above where the entity s assets equal the creditors claim which represents liabilities plus the owner s claim of the assets representing the company s equity. Equity: according to the fundamental accounting equation if we rearrange this to solve for equity one can conclude that Equity = Assets - Liabilities. Upon closer examination it can be clearly seen that equity represents the value of a business after liabilities have been reduced from the company s assets. Often equity is referred to as the residual interest of a company. Also it is important to note that the creditors claims to the assets are always settled first before the owner s claim can be realized.
This is particularly true for the second basic dynamic. The largest portion of most people s net worth is the ownership of their home. As you pay down your mortgage the later payments pay a higher percentage against the principal and less on interest. It is a form of reverse compounding. You pay less interest. In addition the compounded increases of property values are very high when you put them in perspective of what you may have paid for your home 20 or 30 years earlier. Some years they may go up as much as you paid for the house when you bought it. An individual has two primary tools for managing personal finances.
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Clear title ownership of assets such as your home reduce cash draw and this is incredibly important as you approach retirement. The financial crisis we are in now is described as a Balance Sheet crisis. We are in this crisis because nobody was paying attention to their Balance Sheets not even at the towering heights of our financial infrastructure. The symptoms were everywhere. While researching I found that the top sites on the internet for Balance Sheet are those who want to sell you something so that they can gain access to any assets on your balance sheet that might be left after this disaster.