A balance sheet for the rest of us. I've gotta say it drives me nuts when all these finance terms are super opaque and confusing.
For real just tell me what it is in a language I can understand.
Well, here you go -- see below ↓
๐ข ๐๐ฎ๐๐ต
๐๐ฐ๐ญ๐ญ๐ข๐ณ๐ด ๐ช๐ฏ ๐ฎ๐บ ๐ฃ๐ข๐ฏ๐ฌ ๐ข๐ค๐ค๐ฐ๐ถ๐ฏ๐ต
๐ข ๐๐ฐ๐ฐ๐ผ๐๐ป๐๐ ๐ฅ๐ฒ๐ฐ๐ฒ๐ถ๐๐ฎ๐ฏ๐น๐ฒ
๐๐ฐ๐ฏ๐ฆ๐บ ๐ฑ๐ฆ๐ฐ๐ฑ๐ญ๐ฆ ๐ฐ๐ธ๐ฆ ๐ฎ๐ฆ
๐ข ๐๐ป๐๐ฒ๐ป๐๐ผ๐ฟ๐
๐๐ต๐ถ๐ง๐ง ๐'๐ฎ ๐ต๐ณ๐บ๐ช๐ฏ๐จ ๐ต๐ฐ ๐ด๐ฆ๐ญ๐ญ
๐ข ๐ฃ๐ฟ๐ฒ๐ฝ๐ฎ๐ถ๐ฑ ๐๐
๐ฝ๐ฒ๐ป๐๐ฒ๐
๐๐ต๐ถ๐ง๐ง ๐ ๐ฑ๐ข๐ช๐ฅ ๐ง๐ฐ๐ณ (๐ช๐ฏ ๐ค๐ข๐ด๐ฉ) ๐ช๐ฏ ๐ข๐ฅ๐ท๐ข๐ฏ๐ค๐ฆ, ๐ฃ๐ถ๐ต ๐ธ๐ช๐ญ๐ญ "๐ฆ๐น๐ฑ๐ฆ๐ฏ๐ด๐ฆ" ๐ฐ๐ท๐ฆ๐ณ ๐ต๐ฉ๐ฆ ๐ค๐ฐ๐ถ๐ณ๐ด๐ฆ ๐ฐ๐ง ๐ต๐ฉ๐ฆ ๐บ๐ฆ๐ข๐ณ
(* ๐๐ฐ๐ณ๐ฆ ๐ฐ๐ฏ ๐ต๐ฉ๐ช๐ด ๐ช๐ฏ ๐ข ๐ด๐ฆ๐ค ↓)
๐ข ๐๐ถ๐
๐ฒ๐ฑ ๐๐๐๐ฒ๐๐
๐๐ด๐ด๐ฆ๐ต๐ด ๐ ๐ฃ๐ฐ๐ถ๐จ๐ฉ๐ต (๐ธ๐ช๐ต๐ฉ ๐ค๐ข๐ด๐ฉ) ๐ฃ๐ถ๐ต ๐ธ๐ช๐ญ๐ญ "๐ฆ๐น๐ฑ๐ฆ๐ฏ๐ด๐ฆ" ๐ฐ๐ท๐ฆ๐ณ ๐ด๐ฆ๐ท๐ฆ๐ณ๐ข๐ญ ๐บ๐ฆ๐ข๐ณ๐ด
What do I mean?
Let's say I bought a truck. Why didn't I expense it all at once?
It all comes back to the "matching principle,"
which says my Revenue "earned" needs to match my Expenses "incurred."
("earned" and "incurred" do ๐ก๐ข๐ง necessarily mean "cash") → that's the key.
For example,
If I do 1 hour of consulting work, I've "earned" it, but haven't been paid in cash.
Okay so with that in mind...
Let's say the truck helps me generate Revenue over the next 5 years.
(by helping me make deliveries, etc.)
Since my Revenue ๐ฆ๐ข๐ณ๐ฏ๐ฆ๐ฅ must match my Expenses ๐ช๐ฏ๐ค๐ถ๐ณ๐ณ๐ฆ๐ฅ,
I'm going to expense the truck over 5 years to ๐ข๐๐ฉ๐๐ the Revenue.
(and not all at once)
๐ข ๐๐ฐ๐ฐ๐ผ๐๐ป๐๐ ๐ฃ๐ฎ๐๐ฎ๐ฏ๐น๐ฒ
๐๐ฐ๐ฏ๐ฆ๐บ ๐ ๐ฐ๐ธ๐ฆ ๐ฐ๐ต๐ฉ๐ฆ๐ณ ๐ฑ๐ฆ๐ฐ๐ฑ๐ญ๐ฆ
(Fun fact, my Accounts Payable is ๐ด๐ฐ๐ฎ๐ฆ๐ฐ๐ฏ๐ฆ ๐ฆ๐ญ๐ด๐ฆ'๐ด Accounts Receivable)
๐ข ๐๐ฐ๐ฐ๐ฟ๐๐ฒ๐ฑ ๐๐
๐ฝ๐ฒ๐ป๐๐ฒ๐
๐๐น๐ฑ๐ฆ๐ฏ๐ด๐ฆ ๐ ๐ฌ๐ฏ๐ฐ๐ธ ๐ช๐ด ๐ค๐ฐ๐ฎ๐ช๐ฏ๐จ (๐ธ๐ช๐ต๐ฉ๐ช๐ฏ ๐ข ๐บ๐ฆ๐ข๐ณ) ๐ต๐ฉ๐ข๐ต ๐'๐ญ๐ญ ๐ฑ๐ข๐บ ๐ง๐ฐ๐ณ ๐ญ๐ข๐ต๐ฆ๐ณ ๐ช๐ฏ ๐ค๐ข๐ด๐ฉ (๐ฃ๐ถ๐ต ๐ ๐ช๐ฏ๐ค๐ถ๐ณ ๐ช๐ต ๐ข๐ญ๐ฐ๐ฏ๐จ ๐ต๐ฉ๐ฆ ๐ธ๐ข๐บ)
Example: I plan to pay out a $1,200 cash bonus in January 2023,
but I incur ("accrue") a $100 expense every month during 2022.
๐ข ๐๐ฒ๐ฏ๐
๐๐ฐ๐ฏ๐ฆ๐บ ๐ ๐ฃ๐ฐ๐ณ๐ณ๐ฐ๐ธ๐ฆ๐ฅ ๐ต๐ฐ ๐ฉ๐ฆ๐ญ๐ฑ ๐ด๐ต๐ข๐ณ๐ต ๐ต๐ฉ๐ฆ ๐ฃ๐ถ๐ด๐ช๐ฏ๐ฆ๐ด๐ด ๐ฐ๐ณ ๐ค๐ฐ๐ท๐ฆ๐ณ ๐ฎ๐ฆ ๐ฅ๐ถ๐ณ๐ช๐ฏ๐จ ๐ข ๐ค๐ข๐ด๐ฉ ๐ค๐ณ๐ถ๐ฏ๐ค๐ฉ
๐ข ๐๐ผ๐ป๐๐ฟ๐ถ๐ฏ๐๐๐ฒ๐ฑ ๐๐ฎ๐ฝ๐ถ๐๐ฎ๐น
๐๐บ ๐ฐ๐ธ๐ฏ ๐ฎ๐ฐ๐ฏ๐ฆ๐บ ๐ ๐ถ๐ด๐ฆ๐ฅ ๐ต๐ฐ ๐ด๐ต๐ข๐ณ๐ต ๐ต๐ฉ๐ฆ ๐ฃ๐ถ๐ด๐ช๐ฏ๐ฆ๐ด๐ด ๐ฐ๐ณ ๐ค๐ฐ๐ท๐ฆ๐ณ ๐ฎ๐ฆ ๐ฅ๐ถ๐ณ๐ช๐ฏ๐จ ๐ข ๐ค๐ข๐ด๐ฉ ๐ค๐ณ๐ถ๐ฏ๐ค๐ฉ (๐ช๐ฏ๐ด๐ต๐ฆ๐ข๐ฅ ๐ฐ๐ง ๐ฃ๐ฐ๐ณ๐ณ๐ฐ๐ธ๐ช๐ฏ๐จ ๐ช๐ต)
๐ข ๐ฅ๐ฒ๐๐ฎ๐ถ๐ป๐ฒ๐ฑ ๐๐ฎ๐ฟ๐ป๐ถ๐ป๐ด๐
๐ ๐ณ๐ฆ๐ค๐ฐ๐ณ๐ฅ ๐ฐ๐ง ๐ธ๐ฉ๐ข๐ต ๐ ๐ฅ๐ช๐ฅ ๐ธ๐ช๐ต๐ฉ ๐ต๐ฉ๐ฆ ๐ฃ๐ถ๐ด๐ช๐ฏ๐ฆ๐ด๐ด ๐ฑ๐ณ๐ฐ๐ง๐ช๐ต๐ด
(either put back into the business or taken out with a distribution)
(↑ Retained Earnings is ๐ก๐ข๐ง cash, it's just a record)
๐ข Why must my ๐ง๐ผ๐๐ฎ๐น ๐๐๐๐ฒ๐๐ = ๐ง๐ผ๐๐ฎ๐น ๐๐ถ๐ฎ๐ฏ๐ถ๐น๐ถ๐๐ถ๐ฒ๐ + ๐๐พ๐๐ถ๐๐?
Total Assets = ๐ฆ๐ท๐ฆ๐ณ๐บ๐ต๐ฉ๐ช๐ฏ๐จ ๐ ๐ฉ๐ข๐ท๐ฆ
Liabilities & Equity = ๐ธ๐ฉ๐ฆ๐ณ๐ฆ ๐ฆ๐ท๐ฆ๐ณ๐บ๐ต๐ฉ๐ช๐ฏ๐จ ๐ค๐ข๐ฎ๐ฆ ๐ง๐ณ๐ฐ๐ฎ
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