10

On the Other Side

Liabilities and Equity

We said earlier that liabilities are what a company owes and that equity is its net worth. There’s another—only slightly different—way to look at this side of the balance sheet, which is that it shows how the assets were obtained. If a company borrows funds in any way, shape, or form to obtain an asset, the borrowing is going to show up on one or another of the liabilities lines. If its owners put money into the business (and of course, receive stock) to obtain an asset, that will be reflected on one of the lines under owners’ equity. This way of looking at this side of the balance sheet can be important to an entrepreneur. It gives you a picture of how your company is funded, which is critical to ...

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