How To Understand The Balance Sheet

Want to understand Asset liability First, we need to understand how funds enter and enter the company. Every transaction of the company is either cash inflow or cash outflow. Most cash inflows come from sales, some come from loans, most of the cash outflows come from expenses, companies buy raw materials, pay wages, pay interest on loans, and so on, so that the company incurs expenses.

In a word, everything that the company owns can be listed as an asset, such as furniture, inventory, equipment, buildings, cash in the bank, and small cash in the company. Assets have a common character, which is used to produce cash. If assets can not generate cash, they are not assets and cannot be credited to assets.

　　 Account book They are bookkeeping and accounting personnel. Assets also include Accounts receivable That is, the money that a customer who purchases by credit is owed to the company. Liabilities are the amount of money owed by a company to another company or individual. Liabilities must be reimbursed on a certain basis before a fixed date.

A common exception for most debt companies to suppliers and lenders is to pay taxes, which is owed to the government.

Liabilities arise from transactions that occurred in the past. For example, someone delivered to you, accompanied by an invoice, you can pay 30 days later. This invoice is the balance of the owner's equity, which is left to the owner after the assets are deducted from liabilities.

Another way of expression is: asset liability = owner's equity.

Simply means that shareholders have assets and debts, and deducting what is owed from the assets they own is the actual interests of the owners in the company and the actual value of the company. Owner's equity is also called Net value 。

The balance sheet shows assets, liabilities and owners' equity in a given period (usually at the end of a quarter or the end of the fiscal quarter). The formula for balance sheet is: Assets = Liabilities + owners' equity.

This formula is somewhat different from the calculation formula of owner's equity. This formula expresses three meanings:

(1) in the balance sheet, the asset table is on the left side, and liabilities and owners' equity are on the right (some are for format and distance, assets are above, liabilities and owners' equity are below, no matter how it is expressed, the concept is the same: Assets = Liabilities + owner's equity).

(2) balance sheets must be balanced. Assets must be equal to liabilities plus owners' equity.

(3) assets are financed from liabilities and owners' equity, liabilities and owner's equity provide capital for assets, assets are used to produce cash to repay liabilities, and bring profits to owners.

This is how capital flows in the enterprise. The owner will invest in the company and the supplier will provide credit, which will result in owner's equity and liabilities. The management of the company uses this fund to purchase assets. Assets generate cash, then flow back to the right side of the balance sheet, repay liabilities, and remain as owners' profits.

The balance sheet is usually described as "the company's". Freeze snapshot "Because it is a portrayal of a company account on a certain day.