How to Start a Home-based Blogging Business by Brett Snyder

Author:Brett Snyder
Language: eng
Format: epub
ISBN: 9780762790944
Publisher: Globe Pequot

A liability is anything that you owe. In the short term, it could be a bill that has been sent to you but you have yet to pay. It could be your credit card bill. (When you do pay it, it will reduce your assets by the amount of cash you send out to pay the bill.) It could be rent. In the longer term, it could be any sort of long-term loan you’ve taken out to help fund the business.

Think about it this way. If you borrow one hundred thousand dollars to get up and running, that cash will come in the door and become an asset. But you will also have one hundred thousand dollars as a liability to be paid back. Assets minus liabilities will tell you just how much value is in the business.

The thing about the balance sheet is that it has to, well, balance. Since assets and liabilities will not always equal each other, there has to be another component, and that’s owner’s equity. Assets minus liabilities will equal owner’s equity, and that’s what you have built up in the business.

What if liabilities are greater than assets? Then you have negative equity, and that’s not a good thing. This shouldn’t be a surprise to you. (If it is, you might need to go back to an introductory business class.)

Now what about that cash flow statement? What is that good for? It’s actually much more useful if you decide to do accrual accounting, because that type of accounting has very little relationship with cash coming in the door (and going out). If you use cash accounting, then a cash flow statement won’t be nearly as important. But let’s go over it just in case.

Sample Cash Flow Statement

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