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Net Worth: Personal Assets & Liabilities

Net Worth: Personal Assets & Liabilities
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  • 0:00 What Is a Balance Sheet?
  • 1:05 Assets
  • 2:48 Liabilities
  • 3:20 Net Worth
  • 4:08 Lesson Summary
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Lesson Transcript
Instructor: Tammy Galloway

Tammy teaches business courses at the post-secondary and secondary level and has a master's of business administration in finance.

In this lesson, we'll discuss the components of a balance sheet: assets, liabilities and net worth. We'll define each, discuss the sub-categories and provide examples.

What Is a Balance Sheet?

A tornado touched down in Sonja's hometown and left a one-mile path of destruction. Thank goodness no one was seriously injured or hurt. However, the tornado destroyed Sonja's roof, and, unfortunately, her homeowner's insurance will not cover the losses.

Sonja drives to a local bank to inquire about a loan to replace her roof and speaks to John, a loan officer. John asks her to complete an application. As Sonja completes the lengthy packet, there's a section on net worth. She asks John to explain this section to her. John starts by telling Sonja that a balance sheet in a financial statement shows her financial position or worth. A balance sheet comprises your assets, what you own, minus liabilities, what you owe. The difference between assets and liabilities is net worth.

For the rest of this lesson, we'll discuss the components of the balance sheet: assets, liabilities and net worth.

Assets

Assets are items of value that you own. It's important to note that the value listed on the balance sheet represents the present market value, which is the amount you can make from the sale of the item, if you sold it now.

Once you determine the value, separate the assets into four categories: current, real estate, personal property and investments. Assets are listed on the balance sheet in the order of liquidity. Liquidity is the ability to quickly turn assets into cash. These assets are noted as current assets, or assets you can turn into cash easily. Cash is listed first, since it's in liquid form. John tells Sonja to list the cash she has on hand, and then list the balances in her checking and savings account separately.

All the other assets are considered non-current since it's assumed that they will take more than a year to sell. This section includes real estate, which includes any properties that you own outright and properties for which you are paying to own. Examples are primary residences, vacation homes and rental properties. Next, you list the furnishings you own in these properties under personal property. Include high-end jewelry and any extensive collections, such as art or tools.

Sonja asks, 'Is my car considered personal property, as well?' John says, 'Absolutely, similar to real estate, list vehicles you own outright and the vehicles on which you are still making payments.'

Lastly, in the investments section, add any stocks, bonds or retirement accounts you own. After you've entered all assets, add each category together to arrive at total assets.

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