Balance Sheet Reserves

  

Categories: Accounting

Should you ever need to collect on an insurance claim, the insurance company is expected to have that money available. Otherwise, it is (aptly named) insurance fraud.

Insurance companies must have reserves set aside to cover insurance claims made by policyholders. It's not legal for an insurance company to collect the premiums if they can't reasonably, rationally pay claims as they legitimately come in. The level of balance sheet reserves is established based on the level of claims filed historically by that company's policyholders for a given level of risk, deductibles, and other dial-turning events in InsuranceLand, which is definitely not the happiest place on earth...where the theme song of the park remains, "It's A Risky World, After All."

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Finance: What is a Balance Sheet?47 Views

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finance- a la shmoop. what is a balance sheet? well it's a snapshot. a financial

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reckoning of what you own ,and what you owe at a given moment in time. well note

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that a balance sheet is divided into columns like this. on the left are good [balance sheet pictured]

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things like things you own. on the right side are things you owe like debts or

00:24

obligations you have to pay off. well think for the balance sheet of little

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brother Inc. you have total assets of $142 with current assets of a hundred

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bucks .80 bucks of that current asset set is cash and twenty dollars is an IOU

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from the tooth fairy ie dad ,who woke you up last night [clown next to child's bed]

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replacing the tooth and since you're old enough you just winked and he said yeah

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I'll get you a twenty from my wallet in the morning. note that if he'd said I'll

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get it for you a year and change from now. it wouldn't be a current asset it

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would be a long-term asset, because current means that a promise or a

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product or whatever turns into cash within a year. you mowed the lawn for the [assets listed]

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summer for mrs. garden bottom and billed her $500. she paid you four hundred

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ninety dollars and still owes you ten bucks. that money lives in your balance

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sheet on the assets side as an account receivable. you have four hundred ninety

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seven little blue marbles as your only asset which your friend Billy has

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offered you tons of times to buy for twenty four dollars so you can hold that [kids exchange marbles and money]

01:24

amount as inventory. it's an asset. since you know you deal in marbles regularly.

01:28

and you paid ten dollars for ten year rights to enter your sister Jeannie's

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room anytime you want. you still have eight years to go on that paper so you'd

01:36

depreciate its value at a dollar a year worth eight bucks today. total everything [balance sheet shown]

01:40

up and you have that one hundred forty two dollars in assets on your own

01:44

personal balance. sheet okay so what about your liabilities. well you have

01:48

total liabilities of a hundred dollars. you owe Joe lunch bully thirty bucks to

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learn why you'll stop hitting yourself. or rather to stop doing so you owe him

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thirty bucks tomorrow and you know you'll owe him sixty bucks a year in

02:02

change from now maybe more in the future and maybe not if you grow and put on a [ laughing boy is offered cash]

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few pounds. but you are conservative financially so you reserve that 60 bucks

02:10

as if it's a certain long-term debt, so it goes down there on

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line 13 .you borrowed ten bucks from your boo

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Amy the auditor for lunch she actually submitted to you an invoice. albeit

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romantically. so you have ten bucks on line eight there .so you have one hundred

02:26

forty two dollars in total assets and a hundred dollars in total liabilities, but

02:30

wait they don't balance. oh no what shall we do ?well a balance sheet accounts for

02:35

this it's called ale and it stands for assets minus liabilities equals equity. [man gives thumbs up]

02:41

well you have assets $142 we just outlined and you can subtract your

02:45

liabilities which we just outline of a hundred bucks and you have net equity

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value to your life of $42. it looks like little brother Inc doesn't have to worry

02:55

about filing for bankruptcy anytime in the near future which is good because

02:58

with Joe lunch bully in the picture, life is hard enough as it is. [kid frowns as bully pushes his own hand in his face]

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