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{"id":5002,"date":"2021-03-09T14:50:21","date_gmt":"2021-03-09T14:50:21","guid":{"rendered":"https:\/\/www.worldrealestatenetwork.com\/wordpress\/?p=5002"},"modified":"2024-12-04T10:46:25","modified_gmt":"2024-12-04T10:46:25","slug":"accounting-equation-what-it-is-and-how-you","status":"publish","type":"post","link":"https:\/\/www.worldrealestatenetwork.com\/wordpress\/2021\/03\/09\/accounting-equation-what-it-is-and-how-you\/","title":{"rendered":"Accounting Equation: What It Is and How You Calculate It"},"content":{"rendered":"

\"assets<\/p>\n

Retained earnings refer to the portion of a company\u2019s profits that have been retained for future use as opposed to being paid out as dividends. Paid-in capital refers to the excess amount realized from the sale of shares above their par value. Valid financial transactions always result in a balanced accounting equation which is the fundamental characteristic of double entry accounting (i.e., every debit has a corresponding credit). Tracking assets and liabilities is an important part of managing your finances. This information is also needed to calculate financial performance metrics like return on assets. Additionally, all prospective lenders and investors will want to see a current balance sheet.<\/p>\n

\"assets<\/p>\n

Real-World Example of the Accounting Equation<\/h2>\n

\"assets<\/p>\n

For mid-size private firms, they might be prepared internally and then looked over by an external accountant. The image below is an example of a comparative balance sheet of Apple, Inc. This balance sheet compares the financial position what are retained earnings<\/a> of the company as of September 2020 to the financial position of the company from the year prior. Last, a balance sheet is subject to several areas of professional judgement that may materially impact the report.<\/p>\n

Example 3: Regulatory Compliance Analysis<\/h2>\n

However, there are several \u201cbuckets\u201d and line items that are almost always included in common balance sheets. We briefly go through commonly found line items under Current Assets, Long-Term Assets, Current Liabilities, Long-term Liabilities, and Equity. An expense is the cost of operations that a company incurs to generate revenue. It’s a long-term liability if a business takes out a mortgage that’s payable over a 15-year period Food Truck Accounting<\/a> but the mortgage payments that are due during the current year are the current portion of long-term debt. They’re recorded in the short-term liabilities section of the balance sheet.<\/p>\n

Download CFI\u2019s Free Balance Sheet Template<\/h2>\n