Being able to explain balance sheets (convincingly), using easy to understand language, is an important starting point to be able to then go on to develop a deeper understanding at higher levels.
Try commiting these definitions to memory – use them as a starting point. At my coaching sessions these simple definitions are developed and extended as each session progresses.
Assets – what the business owns (4 words)
Liabilities – what the business owes (4 words)
Capital – owner’s stake in the business (5 words)
Easy to learn and remember as a starting point. Give it a go.
Note
- Always think of the business as a separate legal entity.
- Assets have two elements ( FA and CA) – some assets experience depreciation and some are classed as tangible or intangible.
- Liabilities can be current or long term – where does VAT owing and the commercial mortgage appear?
- In addition to the initial money brought in by the owner, the owners capital can be increased in two main ways.
I hope this helps build a basis for further exploration.
If you have an accounting term you are not sure about – send me a tweet.
Good posting. Kudos for your info and your effort and hard work.
Thanks for this. I’m loving this new toy!
Have you tried to do the Price/Profit challenge on the free download page
http://businessfinancecoaching.co.uk/blog/?page_id=256
Have a go and you can always Skype me for somew extra hints if needed. I’d really appreciate any feedback – including suggestions for improvement.
Skype address is: ianlinnegan
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Just a brief message to thank you for this. I have been researching accounting, this was perfect thanks.
Thanks for this – much appreciated as I’ve just started – have you considered following me on twitter – see the link on the home page?