When you mention the subject of accounting, some folks just start to squirm. While accounting can be a tough subject to comprehend, you may be surprised to know that it relates to each of us personally. Just last week in the Accounting Principles class at Globe University-Wausau, we were taking a look at the balance sheet and what its purpose was. I told my students that a balance sheet is a snapshot of what a company’s financial position is on a specific date.
After a few sighs in the audience and blank stares, I knew that I had to tie a bow around this concept. I replied with, “Did you know that all of us have a personal balance sheet?”
We all have some type of assets, whether it is a checking account, savings account, home, 401K retirement fund, car, jewelry, furniture, accessories, etc. With that said, along with those assets come liabilities—like a mortgage, car loan, student loans, credit card balances, etc.
If you have ever taken Accounting Principles, the accounting equation “Assets = Liabilities + Equity” is engrained into our memories. The same equation works for our personal balance sheet, too. After subtracting our assets from our liabilities, we are presented with our net worth. For those non-accounting folks out there, we want to have a “positive” net worth.
Whether we actually want to see it or not is another question, but by having the numbers in front of us, it can help us to see where we are at this point in our life. Working to reduce our liabilities can increase our net worth and help us to meet our financial goals.
When time permits, take a moment and visit Money Management International’s website. It provides an easy to follow template in which you can prepare your own personal balance sheet. You never know, accounting could be in your future!
By: Debbie Heeg, Globe University-Wausau, Accounting Program Chair