ESYB2 056 - Balance Sheet Introduction
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[00:00:00] Now I want to give you a balance sheet introduction, and this can sound like we're getting into complicated finances, complicated accounting. Don't worry, this is only going to be an introduction. If you have a bigger company, you have an accounting department that does it for you. And if you have a smaller company, you may not need to do this.

Or it might be actually really, really simple, simpler than you ever thought. So in a balance sheet, there are three things. You can look at them at three big parts, your assets, your liabilities and your equity assets are things that your company has liabilities are things that it doesn't have like things you owe money coming out of the business.

And the third item, your equity is essentially. Assets minus liabilities. Let's take a look at them in a little more detail. When it comes to assets, there are two types of assets. The first type is your current assets. It's basically like [00:01:00] cash and stocks you own, things that you actually own, and something called accounts receivable.

That's an accounting term, basically meaning money that's owed to you. You didn't get it yet, but it's owed to you. Or any kind of advance payment you made. Let's say you made a payment for some service for the next five years. Well, that can count towards your assets because you're gonna get something for the next five years.

Now, there's also fixed assets. These are things like property or equipment or supplies that you own. So let's say you own a truck. Well, you own a truck and it's worth, let's say, 10, 000. Well, that's your fixed asset. You own that. And you can You can add this in an Excel spreadsheet. You can just create a column assets and itemize this and list all the things you own.

So you'll have your assets. And before we move on, there's another kind of asset. Many businesses don't have this, especially startups, but intangible assets like intellectual property. So you can itemize all these and then move on [00:02:00] to liabilities. Same thing, you would just do this in an Excel spreadsheet and create a list of what are your liabilities.

And again, there's current liabilities and fixed liabilities. Current liabilities are ongoing payments. For example, this can be payroll to employees or payments to vendors or service providers that you use. Those are your current liabilities. And there's accounts payable, which is an accounting term.

Meaning money that you need to pay somewhere. You haven't paid it yet, but you need to pay. And of course there is the fixed liabilities. These are things like bonds or loans that you owe. Maybe you have like employee pension plans or a mortgage that you have to pay off and you have debt. Those are your fixed liabilities.

And your equity is calculated very simply. It's just whatever number you came up with the assets minus your liabilities. And it basically gives you a financial snapshot of your business. If your business is going well, but like you have a lot of loans, well, [00:03:00] it's not that great, right? Because if you have to keep taking loans to finance your business, that's a problem.

And this can uncover issues that maybe on a day to day basis, like you kind of ignore. When you go assets minus liabilities, if you get a negative number, that's a problem. If you get a positive number, That's good. And the more positive it is, the better, of course. So, do you have to do this? Well, not really.

You can actually avoid this, because like I mentioned, if it's a company that you're just starting out, you don't have many assets, you don't have many liabilities. And if you have a bigger company, somebody else has to do this, like an accountant. And usually you have one on hand who works on this, so If you are an entrepreneur, if you're just planning your business, you might think like, Oh, I need a balance sheet.

But really in most cases for students in this course, it's not that helpful.

