Any time the value of assets change-perhaps you receive more in cash from a sale than the value of the inventory you sold, or you were forced to write down a truck that was involved in a collision and no longer works-the value of equity changes.īecause the value of liabilities is constant, all changes to assets must be reflected with a change in equity. Unlike liabilities, equity is not a fixed amount with a fixed interest rate. These are listed at the bottom of the balance sheet because the owners are paid back after all liabilities have been paid. Since they own the company, this amount is intuitively based on the accounting equation-whatever assets are left over after the liabilities have been accounted for must be owned by the owners, by equity. Equityīelow liabilities on the balance sheet is equity, or the amount owed to the owners of the company. Liabilities are presented as line items, subtotaled, and totaled on the balance sheet. Similar to assets, liabilities are categorized as current and non-current liabilities. Liabilities are listed at the top of the balance sheet because, in case of bankruptcy, they are paid back first before any other funds are given out. The interest rates are fixed and the amounts owed are clear. With liabilities, this is obvious-you owe loans to a bank, or repayment of bonds to holders of debt. Liabilities and equity make up the right side of the balance sheet and cover the financial side of the company. Then, current and fixed assets are subtotaled and finally totaled together.
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