Alright, some of you may be saying, "Wait a minute...this blog used to be blue. What's with all of the white?" Well, I got some good feedback in the last post about how the blog was hard to read given the blue background and the white letters. It never dawned on me that other people had to read this stuff. Since we are up to an amazing 6 subscribers now, it’s time to make the site a little easier on the eyeballs.
In case you are wondering, the feedback came from a guy named Ryan Money. He is someone that I have really grown to respect. He has done some amazing things in the entrepreneur world and I suggest you check out his blog at ryanmoney.com
Let’s get back to this accounting thing, shall we? So we are talking about debits and credits. Last post we established that when a banker says debit or credit, it doesn't always mean the same thing to an accountant. To wrap your head around this, we need talk about a formula first. Alright, after reading the word "formula" how many of considered closing down this blog and never coming back? Don't let it upset you, it’s an easy one.
Here it is: ASSETS = LIABILITIES + STOCKHOLDERS' EQUITY
See, I told you that it wasn't so bad. This little formula is the most important formula you can memorize in the accounting world. This equation says that your company has assets and that you paid for those assets in one of two ways; and most likely both. Those two ways are liabilities (debt) and stockholders' equity (Your own money, investor money, and money the business has made up to this point).
Think of it like this - if you have $100,000 in assets and $60,000 in debt with the bank, the other $40,000 is money that you put into the business or its money the business made and has retained to pay for those assets.
The next post is going to tie this formula to those two funny little words we know as debt and credit.
Until next time, happy counting.
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