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FAQ

How do you fill out a balance sheet for a business plan?
You can't just fill out a business plan as you need to construct it from the whole set of information that includes the profit and loss account and other items. A layman will not be able to do this properly so seek out a friend who can give you the advice on how to prepare a proper plan. Doing it in an amateur way will not impressed anyone.
How can the balance sheet be balanced if a company takes out a loan?
There are two transactions which need to be recorded:the loanthe accrued interestThe loan. Debit cash and credit loans payable. Assets go up. Liabilities go up. They both go up by the same amount. If the loan will be repaid in less than a year, it is classified as a short-term liability. If not, it is a long-term liability. If portions of the loan are due within one year, you’ll have both.The accrued interest. This is the part that all of the other answers (as of this writing) got wrong or didn’t address very clearly.When you take out a loan, the interest which needs to be repaid are based upon three factors, the principal, rate of interest and the manner in which principal is repaid.If you took out a loan for $1K, then repaid this over 12 month in equal monthly payments, the interest will be different than if you had made no payments and simply repaid the entire amount plus interest at the end of two years.How you will record the $100 in interest, depends upon those factors. If you make no payments and simply owe $1,100 X days, months or years into the future, you can record your interest expense on a straight-line basis. This basically means taking the entire $100 and dividing it by the number of months the loan remains unpaid.In all cases, the journal entry will be the same. Debit interest expense and credit accrued interest. The word accrued means that you owe this amount, just the same as how owe principal.Since interest expense is an income statement account, effectively, this lowers your income which, in turn, lowers your retained earnings (equity section of the balance sheet). So, in terms of the balance sheet, you have a balanced entry which debits equity and credits liabilities.Now, if you are making monthly payments, the straight-line method is no longer appropriate. Because you have decreasing principal and the interest earned by the lender in particular period will be much larger at the beginning of the term, gradually growing smaller and smaller, as the principle amount is reduced by each successive monthly payment. You’ll need to prepare an amortization schedule to determine the monthly interest over the repayment terms to record the proper amount of interest expense each month.
How exactly can I get out of this comfort zone by motivating myself?
10 Ways to Get out of your comfort zone:Give more money than you feel comfortable with away tomorrow (amount is usually relative on your current situation)Answer a call from an unknown number. Even better if it's a debt collectorDo something others are waiting for someone else to do. Today at the post office, there was a long line. There was no one answering the door there to pick up packages. People would come in, ring the bell and wait. All of us in line knew they were wasting their time, but said nothing because we didn't want to look weird. I didn't say anything, so I failed at this because I didn't want to "stand out"Invite someone you don't know to meet for coffee (someone in your field). Don't stop at a no response, wait for someone to say No or the more common "My schedule is very busy, maybe another time."(A polite No)Talk to someone in an elevator. It's regularly NEVER done by 99% of people. You'll find most people are really pleasant, but no one wants to say the first word.If a waiter or barista or anyone messes up something today (work included). Don't "be nice" and let it go. That's back talk for "not wanting to make waves." Be polite and ask them to correct the mishap. My wife, infant and I were out at a restaurant and a waiter hadn't greeted us to start for over 10 minutes. My inners were saying, "Oh, don't worry someone will notice you, just sit tight." That's your inner back talk "wimp" voice. So, I got up, went to the manager and told him (politely) to have a waiter sent over immediately. They offered us a free appetizer for the mishap.Every person you walk past today, give a smile and "hello." Most people wait for the other person and then it just looks sad as 2 glum faces make eye contact. We don't want to look too "eager" or "weird." Do it, most will return it.As Matt said, ask for a discount somewhere. It doesn't have to be Starbucks. I just had a late fee on a credit card. My inners are telling me, "you deserve it, just let it go." I swallowed, dialed the bank, asked them to remove the late fee, and they did. Ask and you shall receive.At any point in the day you realize you haven't exercised at all (typically when you're in a lazy position) immediately get up and do a set of 25 pushups. It's hard. I'll couple this willpower exercise with getting up right when the alarm goes off. Immediately. Not even 10 seconds later. Right away. It's this same muscle that pushes you that builds new habits.Write a FB status about a failure you've had, or a personal story about struggle (without the "feel sorry for me" feel to it). When no one comments, celebrate the rejection. I once posted a status about one of my most embarrassing moments in my life on FB (from HS, I was in a talent show, everyone was looking forward to our band playing, I couldn't hear myself over the drums, I knew I sounded terrible based on the looks in the crowd, so I faked a cough to get off stage). NO ONE commented on FB. Awkward.
How do I figure out the liabilities and assets side of a balance sheet in banking?
Your question is somewhat confusing because it’s hard to tell if you’re talking about creating a balance sheet for a bank or if you’re dealing with a balance sheet that will be used by or given to a bank. Yes, it makes a difference! The reason is because the cash given to a bank by its customers is a liability not an asset! Something I would teach my students because I worked for many years in banking. And have degrees in economics, finance, and accounting. I’ve also taught all three of these.So you have to realize that when a banking customer deposits money with their bank, the bank is merely acting as a holder of their money. So it’s not the bank’s money, it’s still the customer’s! The bank is like a PO Box where you’re putting in your money for safekeeping. But you can take that money out if you’d like when you’d like. So it’s still your money in there!In a macroeconomics course, a finance course like money and banking, and in some accounting classes too, you’ll see demand deposits being on the liability side. This is the technical name for checking accounts at a bank. So, customer (depositor) money to a bank is the customer’s money not the banks. And that makes it a liability as far as the balance sheet goes.But there is also cash that the bank actually has and owns. So you will also see cash on the asset side. Thus, with a bank’s balance sheet, you have to be very careful to make sure you have the cash separated out properly because they go on different sides of the balance sheet.
What is easiest way to find out fabricated balance sheet?
For me:First, I have yet to understand the nature of the business the company is engaged in.From there I can use simple FS analysis coupled with financial ratios employing operating assets such as Inventory, Accounts Receivable, or Fixed Assets turnover.Ask questions and use judgment: are these ratios reasonable in light of the company’s nature of business?For instance, it is not normal for a service company to be stocking a huge amount of inventory. Or for a company selling products with short shelf lives like 3 days, Days Inventory Outstanding should not be 100 days.
How do you read the balance sheet of a company?
Today I’ll be (hopefully) demystifying how to read a balance sheet, a potentially confusing beast for those unfamiliar with it.First off, what is a balance sheet and what does a balance sheet show? At it’s simplest, a balance sheet shows what assets your company controls and who owns them. And if you’re concerned with not bankrupting your new store (“I TOLD you selling piranhas online would never work!”), it’s a pretty important statement to understand.Fortunately, it’s not too difficult to grasp if you’re willing to learn a few key concepts. So let’s dive in!Anatomy of a Balance SheetUnlike the income statement which shows how a company performed over a period of time, a balance sheet shows a business‡ financial health at a single point in time. This will take the form of an exact date, like 9/30/2021 for example, and is usually prepared at a month or quarter’s end.The balance sheet lets you know exactly what things of value a company controls (assets) and who owns those assets: someone else (liabilities) or the business owner (owner’s equity). Revisiting our friend Phil from last time, you can see the balance sheet for his business The Parachute Palace below:AssetsAn asset is anything of value your business controls, regardless of who owns it. Cash, office equipment (computers, chairs, etc) and inventory are all considered assets. So are accounts receivable, which represents people who owe you money but haven’t yet paid.This is an important enough concept to repeat: the financial ownership doesn’t matter. If something is in possession of a company, it’s considered an asset.Did your business manager go out and borrow $60,000 to 100% finance a new Escalade for sales calls? The car may be entirely owned by the bank (and causing Dave Ramsey to cry), but it’s still an asset as far as the balance sheet is concerned.LiabilitiesLiabilities are debts you owe to other people. This could be a credit card balance, payment owed to suppliers who offer you 30 or 60 day payment terms or long-term debt ‡ like the loan on that new Escalade.Any debts or future financial obligations you have to pay should be listed in the liabilities section.Owner’s EquityOwner’s equity represents the portion of the business assets that you own free and clear. Think of it this way: if you liquidated all of your assets and then paid off all the debts you owed, the amount left over would be your “owner’s equity”.It’s important to understand that owner’s equity is NOT necessarily how much the business is worth in a sale. Because businesses usually sell based on a multiple of their earnings, the value of a business will usually (but not always) be greater than the owner’s equity value (also called “book value”).The Balance Sheet EquationThe balance sheet is so named because the two sides of the balance sheet ALWAYS add up to the same amount. The balance sheet is separated with assets on one side and liabilities and owner’s equity on the other.This one unbreakable balance sheet formula is always, always true: Assets = Liabilities + Owner’s Equity.In our balance sheet from above, you can see that this holds true:At first, this rule can be really confusing. But think of it this way. All the assets owned by a business fall into one of two categories. They’re either owned by a creditor (you had to take a loan to get them) or they’re owned by you (you paid for them in full). That’s pretty much all the balance sheet equation is saying!The Home Mortgage ExampleLet’s use a simple balance sheet example that you’re probably familiar with ‡ a home mortgage. Assume you recently purchased a home worth $250,000. With the financial carnage of 2021 fresh in your mind, you put down a healthy 20% down payment of $50,000 and took out a loan for the remainder of the balance of $200,000.What would your balance sheet look like in terms of assets, owner’s equity and liabilities?The asset column would be the value of the home, regardless of who owns it. So in this case, the value of the home is $250,000. Assets = $250,000. Our liabilities ‡ the amount we owe to someone else ‡ is the value of the loan. This is what we’re financially obligated to pay to someone else. So liabilities = $200,000.Let’s go back to our universal balance sheet formula: Assets = Liabilities + Owner’s EquityInserting our values, we get:$250,000 (Assets) = $200,000 (Liabilities) + Owner’s EquityAt this point, you can compute owner’s equity one of two ways. You can either do some simple algebra and solve for the equity figure. Or you can go back and recognize that we put down $50,000 of our own money. So that would be the portion of the home we own and which represents the owner’s equity.$250,000 (Assets) = $200,000 (Liabilities) + $50,000 (Equity)You’ve probably done this in your head before and never realized it was an accounting balance sheet at work!And Then Come the Boars (Sorry, What?)As I’ve mentioned repeatedly now, the rules of the accounting universe decree that a balance sheet ALWAYS must balance. So what happens a year down the road when some wild boar trainers and their 20 filthy animals move in next door and reduce the value of your property by $30,000? (A common occurrence, I’ve heard.)Let’s tackle the asset side first. Because the market value of the home has gone down by $30,000, we’ll reduce the asset side by that amount ‡ from $250K to $220K:$220,000 (Assets) = $200,000 (Liabilities) + $50,000 (Equity)But now we’re in trouble as our balance sheet equation doesn’t balance. We’ll need to adjust either liabilities or equity to get things right.Disregarding the small amount you’ve paid off your loan, let’s assume it’s still $200,000 ‡ so this part hasn’t changed. So we’ll need to adjust the equity portion to balance the equation:$220,000 (Assets) = $200,000 (Liabilities) + EquityEquity = $20,000, so…$220,000 (Assets) = $200,000 (Liabilities) + $20,000 (Equity)Ouch ‡ a $30,000 direct hit to the equity you had in the house! If you think this simple balance sheet example may be a bit far fetched, perhaps we should do something that’s more business related and less boorish (Pun 100% intended. Please don’t stop reading).Purchasing a Sweet New RideUnfortunately, business for Phil at the Parachute Palace isn’t going very well. He had a few quality control issues with the parachutes and people haven’t been buying because of it.Improving the quality of the products would be too much work (obviously) so he hatches another plan. Instead, he decides to finance a brand new $45,000 BMW to make it look like his parachutes are selling like hotcakes and hopefully increase confidence in the business.Let’s tackle the asset side of the accounting balance sheet first. Because the car is valued at $45,000, we’ll add this amount to the assets side under the account “Vehicles”. But this leaves our balance sheet unbalanced as you can see below:The way to fix it? We need to add the outstanding debt to the liabilities side, as seen below. Again, the assets of the business increase by $45,000 ‡ but there’s no change in the amount of equity the business owner has. The entire amount was added to liabilities.Let’s explore one more example. Realizing the error of his free spending ways, Phil resolves to start being more financially prudent and decides to pay off the business‡ outstanding credit card debt, which is listed under liabilities.For things to balance, we’ll need to make an adjustment to both sides of the balance sheet. Care to take a stab at which account on the asset side needs to be changed if he’ll be paying off the credit cards?Happen to guess cash? If so, you’d be right. To pay off the credit card balance, Phil will need to pull the funds from his cash account. Because the credit card balance is at $5,250 both the cash and credit card accounts are reduced by this amount.Notice that even though Phil’s cash levels decreased by over $5,000, the owner’s equity value of the business didn’t change. The payment simply decreased funds from the asset side (cash) to pay off a liability (the credit card) with no effect to the amount of equity Phil had in the business.That’s the Basics….There’s plenty more to the balance sheet, but I’ll spare you the gory details of shareholder distributions, accumulated deprecation and retained earnings that make accountants howl with delight. But using the concepts we covered, you should be able to make sense of most balance sheets you come across.For further strategies or investment related queries, Try Swastika Investmart Ltd to manage your Wealth Profile. Click here to open an account or feel free to Contact Us
How to find out the right value of a stock? And what will happen if there is "deferred liability" in the balance sheet of a stock?
There is no ‘right‡ value of a stock.There are only estimates of the probable right value. The closest you can come to a tangible value is when you calculate liquidation value per share. Apart from it, all other values including the price at which the stock is traded at are just an outcome of the perception of the market.Deferred liabilities including contingent liabilities do affect balance-sheet. However, the timing and impact are often unreliable. However, smart investors price in deferred liabilities in the price of a stock.There are no free lunches in finance. You have to dig deep to arrive at your ‘right‡ value.