Recall that the balance sheet equation states that net worth equals total assets minus total liabilities. Identifying assets and recording them is one of the first steps in balance sheet preparation. In some instances, assets are acquired with cash. In others, often large purchases, they are acquired by securing debt (for example, a bank loan or a department store charge). Regardless of how an asset is acquired, items purchased through financing have associated debt which is owed by you and must be repaid in the future. These itemsor are generally classified according to maturity.
Current Liability Long-Term Liability Electric bill Educational loan Loan from parents Water bill From origination, 36-month automobile loan Washer/dryer loan due this year Property taxes, current year Two-year loan to purchase investment securities
Acquiring assets by taking on debt is one way you can accumulate assets. And many of these loans will fall into the category of long-term liabilities But, in order to present them on the balance sheet correctly, the following must be know about the loan. Complete each statement as it applies to loans.