Chapter 6
Balancing Assets against Liabilities and Equity
IN THIS CHAPTER
Defining assets, liabilities, and equity
Exploring the basics of balance sheets
Reviewing assets
Understanding liabilities
Examining equity
Picture a tightrope walker carefully making her way across a tightrope. Now imagine that she's carrying plates of equal weight on both sides of a wobbling rod. What would happen if one of those plates were heavier than the other? You don't have to understand squat about physics to know that it isn't gonna be a pretty sight.
Just as a tightrope walker must be in balance, so must a company's financial position. If the assets aren't equal to the claims against those assets, then that company's financial position isn't in balance, and everything topples over. In this chapter, I introduce you to the balance sheet, which gives the financial report reader a snapshot of a company's financial position.
Understanding the Balance Equation
A company keeps track of its financial balance ...
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