WHAT IS A BALANCE SHEET?
Define Balance Sheet?
Balance Sheet provides the summary of your wealth which is the assets, liabilities and your net worth.
What is Balance Sheet in more detail?
A balance sheet is a financial statement that is also an extension of your household budget. Why? Because it can also give you a summary of your assets while managing your liabilities and even your investment portfolio. Let’s go back to define what is assets and liabilities. Assets is anything that you own while liabilities are anything that you owe. Assets will produce a future value but a liabilities will produce a future costs.
For example: If my company borrow a $10,000 loan from a bank , then the assets would increase to $10,000 but the liabilities would increase also to $10,000 which balances out the accounts.
Another example of a balance sheet is below:
Mutual Funds $10,000
Car Loan $2500
Credit Cards $1000
Now we would add all your assets and liabilities
Assets = $234,000
Liabilities = $156,500
Net Worth = $234,000 - $156,500 = $77,500
In this example, the total net worth is $77,500
When you do fill out a balance sheet you can finally determine your net worth.
By using a balance sheet, you can track your financial progress especially if you want to increase your debts and increasing your assets and growing your net worth. You can prepare or do your balance sheet twice a year, it can help you achieve a goal or a dream like paying for a loan or saving up for a vacation. It can also show you if you need a financial revamp or change in your financial journey plus it can help you identify problems like a credit card debt.