#FinancialReportingandAnalysis

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[theeconomicjournals]

Balance Sheet = Company's Assets, Liabilities and Shareholder's equity at a SPECIFIC point in time.

Main equation to remember: 

Assets= Liabilities + Equity 

or

Equity= Assets- Liabilities.

Assets: Resources owned or controlled by the firm

Liabilities: Firm's legal debts or obligations that arise during the course of business operations

Shareholder's equity: Difference between assets and liabilities. The amount of funds contributed by the owners (capital contributions) plus the retained earnings/internally generated capital (or losses).

The two sides (Assets) and (Liabilities + Equity) BALANCES out, always. 

Scenarios:

1) Jane goes to the bank and borrows £1million. ↑Liabilities.

2) Jane buys a car ↑Assets 

↑Assets = ↑Liabilities balances out.

3) Jane, the freelance masseuse, earns £200 on a given day. Profits recorded in ↑Retained earnings = Equity 

4) Her cash from profit ↑Cash from = Assets 

↑Equity = ↑Assets: Balances out. 

5) Jane slowly pays back her loan ↓Liabilities

6) This also ↓Cash from = Assets 

↓Liabilities = ↓Assets= Balances out. 

Tip: usually, if it doesn't balance out, try considering a change in retained earnings! 

(Can I BALANCE myself after drinking a glass of A=L+E?)

Useful links: http://www.investopedia.com/video/play/introduction-balance-sheet/

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