Recall that the balance sheet equation states that net worth equals total assets minus total liabilities. Identifying assets and recording them is one of the first steps in balance sheet preparation. In some instances, assets are acquired with cash. In others, often large purchases, they are acquired by securing debt (for example, a bank loan or a department store charge). Regardless of how an asset is acquired, items purchased through financing have associated debt which is owed by you and must be repaid in the future. These items, or___are generally classified according to maturity. Check the category to which each of the items belong.
Current Liability Long-Term Liability
Electric bill
Educational loan
Loan from parents
Water bill
From origination, 36-month automobile loan
Washer/dryer loan due this year
Property taxes, current year
Two-year loan to purchase investment securities
Acquiring assets by taking on debt is one way you can accumulate assets. And many of these loans will fall into the category of long-term liabilities But, in order to present them on the balance sheet correctly, the following must be know about the loan. Complete each statement as it applies to loans.
• Regardless of the type of loan, only theis shown on the balance sheet.
• Theloan balance is not what is currently owed but what was.
Loan amount: The portion of a loan listed as a liability on the balance sheet is only the.
Now that you have an understanding of assets and liabilities, an easy formula can determine your net worth. Again, recalling that net worth equals total assets minus total liabilities, complete the following statements.
: The fair market value of assets owned less liabilities owed
: The amount left after selling assets and paying off all liabilities
: Net worth is less than zero
Once expenses have been identified, they can be categorized as either fixed expenses or variable expenses. For example, your mortgage would be considered a (1) expense, because.
(2) Conversely, grocery bills would be considered (3), because the actual amount is (4)
1. Variable or fixed.
2. The payment amount set by contract or the interest rate is fixed.
3. Fixed or variable.
4. Known or not known.