Balance Sheet

It’s a snapshot. A financial reckoning of what you own, and what you owe, at a given moment in time.

A balance sheet is divided into columns. On the left are, uh...good things. Things you own. On the right side are things you owe, like debts or obligations you have to pay off.

Think through the balance sheet of Little Brother, Inc. You have total assets of $142, with Current Assets of $100. Eighty bucks of that Current Asset set is Cash and $20 is an IOU from the tooth fairy, i.e. Dad, who woke you up last night replacing the tooth, and since you’re old enough, you just winked, and he said ""yeah, I’ll get you a 20 from my wallet in the morning."" Note that, if he’d said ""I’ll get it for you a year and change from now,"" it wouldn’t be a current asset, it would just be a long-term asset, because current means that a promise or a product or a whatever, turns into cash within the year.

You mowed the lawn for the summer for Mrs. Gardenbottom, and billed her $500. She paid you $490 and still owes you $10. That money lives on your accounts receivable line.

You have 497 little blue marbles as your only asset, which your friend Billy has offered you tons of times to buy for $24…so you can hold that amount as inventory, since you deal in marbles regularly.

And you paid $10 for 10-year rights to enter your sister Jeanie’s room any time you want. You still have 8 years to go on that paper, so you depreciate its value at a dollar a year. It’s worth $8 today.

Total everything up and you have that $142 in assets on your own personal balance sheet. OK...so what about your liabilities?

Well, you have total liabilities of $100. You owe Joe LunchBully 30 bucks to learn why you’ll stop hitting yourself. Or rather, to stop doing so. You owe him 30 bucks tomorrow. And you know you’ll owe him 60 bucks a year from now. Maybe more in the future, and maybe not, if you grow.

But you are conservative financially, so you reserve that 60 bucks as if it’s a certain long-term debt. You borrowed 10 bucks from your boo Amy the Auditor for lunch. She actually submitted to you an invoice, albeit romantically.

So you have 10 bucks on that line of your balance statement. You have $142 in total assets and $100 in total liabilities.

Wait. They don’t balance. Oh no. What shall we do?

Well, a balance sheet accounts for this. It’s called ALE and stands for Assets minus Liabilities equals Equity. You have assets of $142, which you can subtract from your liabilities of $100, and you have net equity value to your, uh...life...of 42 bucks.

Looks like Little Brother, Inc. doesn’t have to worry about filing for bankruptcy any time in the near future. Which is good, because with Joe Lunchbully in the picture, life is hard enough as it is.