Interesting
name, “Balance Sheet.” It quite
literally means that the two sides of the sheet must balance. There’s that non-marketing, highly-practical
and no-nonsense financial and accounting approach you can and should expect
from your financial partners.
This is one of the
most simple equations you will encounter in your business life, and it is
ALWAYS solvable. Let’s take a look at
most basic construct:
Assets = Liabilities +
Shareholders’ Equity
What makes this equation so eminently and easily solvable is
that “Shareholders’ Equity is a “plug figure.” That’s
right – you just need to make Shareholders’ Equity the number that balances
(with the liabilities) against the Assets side of the ledger.
Since Shareholders’
Equity is a plug figure, you might question whether or not it is “real.” In most accounting, little is “real.” Accounting is a convention used to reconcile
the financial performance of a company with a set of rules and guidelines that
allow investors and owners the ability to compare it’s performance not only on
a period-to-period basis, but as importantly, to alternative investments in
other companies.
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