Balance Sheets Made Easy

by KenFaulkenberry

A balance sheet shows the assets, liabilities, and net worth of an individual or entity at a given point in time. In other words, it is a snapshot or statement of financial position on a specific date.

Related: The Role of Real Assets in Portfolio Construction

Components of Balance Sheet

Define Assets

Assets are items that are owned and have value. Assets would include cash, investments, money that is owed to the person or entity (accounts receivable), inventory of items for sale, supplies, pre-paid expenses, land, land improvements (buildings), equipment, etc.

Define Liabilities

Liabilities are obligations or items that are owed to others. Liabilities are the accounting opposite of assets. Liabilities would include accounts payable, accrued interest and principle on bonds issued, accrued interest and principal on mortgages outs1tanding, etc.

Define Net Worth Calculation

Assets – Liabilities = Net Worth