Financial Planning, Budgeting, and Forecasting: Financial Intelligence Collection (7 Books)

12

Why the BalanceSheet Balances

If you learned in school about the fundamental accounting equation, the instructor probably said something like this: “It’s called the balance sheet because it balances. Assets always equal liabilities plus owners’ equity.” But even if you dutifully wrote down that answer on the exam, you may be less than 100 percent crystal-clear on why the balance sheet balances. So here are three ways of understanding it.

REASONS FOR BALANCE

First, let’s go back to an individual. You can look at a company’s balance sheet just the same way you’d look at a person’s net worth. Net worth has to equal what he owns minus what he ...