From the course: Reading Corporate Financial Statements

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The accounting equation and the equity section of the balance sheet

The accounting equation and the equity section of the balance sheet

From the course: Reading Corporate Financial Statements

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The accounting equation and the equity section of the balance sheet

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- The story of the family photo continues. Here we'll finish the family photo session by discussing equity. The balance sheet is prepared by first recording all the assets, those resources we have or have a right to and continues by listing all of the liabilities. Those who've financed our assets and expect to be paid back for their financing. Equity represents financing of those assets too. It's different in that equity isn't generally viewed as something you have to pay back. In our home purchase example, you remember that when you buy a home, you have to put something down, your down payment becomes your equity, it's from your pockets, your savings accounts, maybe a family member gave you a gift. Equity for a business comes from similar sources, but we generally think of equity as internally generated like savings account, or externally generated like a gift. For a business, the internally generated or the savings…

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