Inventory Balance Sheet
This usually presents less of a challenge than the valuation of assets because most long term assets like loans have explicit terms that spell out exactly how much you owe on them at any given moment in time. How Equity Is Valued Depending upon the type on entity (Corporation S-Corp LLC. etc.) that you use the equity portion of the balance sheet can use different terms but really there are two kinds of equity: capital that you put into the company (stock contributed capital etc.) and the earnings of the company (retained earnings). The capital that you contribute is usually pretty straightforward.
Before the disaster the only thing that had any importance was whether a potential buyer of anything could afford to make the payments on whatever he was buying assuming he made 120% of his stated income. The most outrageous symptom was that people would take appreciating home equity and borrow against it to buy depreciating assets and consumer goods. They overbooked their budgets and now they have gutted their balance sheet. The resulting loss of home values is the disaster we have now where people have either a zero or minus Net Worth. The other aspect is that we are now wiser. For the good of our society and our financial infrastructure we had better be. Going forward we must pay attention to our Balance Sheets and recognize that is where the gold is.
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It reports the balances of all assets liabilities and equity accounts for the company. It is critical to understand the fundamental accounting equation in the preparation and presentation of the balance sheet where Assets = Liabilities + Equity. Assets: contains all resources that the company owns at the balance sheet date. This includes both current and non-current assets that the company utilizes in order to generate future economic benefits. The most common current assets listed on the balance sheet includes cash accounts receivable and inventory which are resources that are anticipated by management to be converted into cash within a year or the entity s operating cycle whichever is longer. Accounts receivable is simply the amount of money owed to the company by its customers which is generated from the sale of goods and services on account.
They open them up turn to page one and there is your company laid bare open to them. And they ask you questions; "why is this line a negative number how did you arrive at the valuation of that line what are the terms of this liability." Don t you want to be able to confidently look them in the eye and answer those questions? What Makes Up a Balance Sheet Hopefully you have been exposed to some basic accounting and understand the concepts that some numbers in accounting are recorded as debits and some numbers as credits. These numbers are often represented as positive and negative numbers and the balance sheet as its name suggests must balance i.e. the negative and the positive numbers must total zero.