Read Along With the VideoTranscript
Let's talk about the balance sheet. So there are a couple of key things that you're going to need to remember when you're thinking about the balance sheet. The first is right there in the name. It's gonna have to balance. So if you get to the end of a balance sheet and it doesn't balance, you've done something terribly wrong. Okay, so what is the balance sheet? Well, the balance sheet is a financial statement that represents assets, liabilities, and owner's equity. Does this look familiar at all? So the balance sheet is a representation of the accounting equation. You remember that? So on a balance sheet, you're gonna see assets, and you're gonna see a bunch of stuff, and it's gonna come out to a number at the bottom.
And then on the other side, you're gonna see liabilities plus equities, and you're gonna see probably a section for liabilities and a bunch of stuff, section for equities and a couple things. And then at the bottom, you're gonna see a number. And these two numbers should balance. That's why they call it a balance sheet. So that's the first thing you gotta remember. Balance sheet balances. Now, we'll go over how to make a balance sheet, all that good stuff, in more detail than you could ever imagine. For now, we're just gonna do a high-level overview. So the first one is must balance.
The next thing is your teachers are going to love to ask, does a balance sheet represent a point in time or a period of time? Now, you know I'm against memorizing, always in favor of learning, because it makes it so much easier if you just learn it. So the question becomes balance sheet, BS, point or period of time?
Let's see if we can logic our way into an answer. As a college student, let's go ahead and draw out the accounting equation here. As a college student, let's say you got $10,000 in loans that finally funded today. So now you have $10,000 cash, but you also have a $10,000 loan that you're gonna have to pay back, okay? So that happened this morning. Before you came to class, you got funded, and now you can go get some Chick-fil-A. So today, you have $10,000. Yesterday, you had no dollars and no loans.
So no loans, great. No dollars, not so great. Hard to eat. Now, if I came to you and said, "Hey, I want you to prepare your personal balance sheet. I want to see a listing of your assets and your liabilities." And we'll just leave off equities for personal stuff. "I wanna see your assets and your liabilities." Well, you would say for yesterday or for today?
Because yesterday and today, they look extremely different, right? And it's probably gonna look different, you know, from before lunch and after lunch, 'cause you're gonna have less cash. So if it looks different from yesterday to today, then the balance sheet has to be prepared at a specific point in time, because a balance sheet of yesterday looks like 0, 0. A balance sheet of today looks like 10,000, 10,000. So when you see a balance sheet, it's always gonna have, at the very top... Let's get rid of all this nonsense. A balance sheet is always gonna have, at the very top, a date, usually end of the year.
Because what this date is telling you is that at this point in time, at the end of this day, right here, here's what we had in assets, here's what we had in liability, here's what we had in equity. Because you know that yesterday it was different, and a couple weeks ago it was different, and a couple months ago it was different. So the question, is the balance sheet a point in time or a period of time statement? Well, it's definitely a point in time statement, because things change day to day. And if you're representing assets and liabilities, well, you know what? Those change day to day, so you need to know, well, what day do you want the balance sheet for?
Usually it's gonna be the end of the calendar year, so usually you're gonna see balance sheets dated December 31, whatever year. So the two things to remember: a balance sheet must balance, and a balance sheet is a point in time statement.