PERSONAL FINANCE 2: ASSETS OF A PERSONAL BALANCE SHEET
A Personal Balance Sheet, like a business or corporate Balance Sheet, follows all the accounting rules and the same accounting equation of :
Assets = Liabilities + Equity.
What you really own (your Equity) will be all your assets minus all your liabilities.
It is useful to classify your Personal Assets into Earning & Non-Earning. Thus, your cash will be partly an Earning Asset (the portion in your Savings Account) and a Non-Earning Asset (the portion on hand and in your Checking Account).
If you had apartments or equipment for lease, these would be included under Earning Assets as Properties for Lease. These Properties depreciate, so you have to estimate how much they lose value from period to period. The simplest way is to estimate how long (years) you think they can continue earning and divide the value of the Property by the number of years. The result will be Accumulated Depreciation which is a reduction of the value of your Properties.
Investments would include genuine jewelry. If you had stocks, the dividends will be the earnings. If the stocks increase in value, you have a choice of recording them in your Balance Sheet at the price you bought them or at their current market value. However, whatever value / method you choose, it should be maintained and be used consistently from period to period.
If you lent money to somebody, this (including the interest) would be an Earning Asset. If you are not charging any interest, then this should be listed under Non-Earning Asset.
If you think a Loan (Notes Receivable) will not be paid, you have to set up an Allowance for Doubtful Accounts. This will be a reduction of your Notes Receivable Asset.
Some expenses are prepaid, e.g., insurance (usually, in advance for a whole year). The amount paid will remain an asset until the period for which the payment was made has expired.
The Non-Earning Assets are real assets you own, although they are not earning, (for example, the house you own and live in, your clothes & costume jewelry, etc). If your house is mortgaged, then the loan amount should appear in your Liabilities.
When you total all your assets and subtract all your liabilities, what is left is what you really own and how much you are really worth.
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POSTED IN: Accounting for NonAccountants, Balance Sheets, Personal / Household Finance
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