Why was this so hard?
Have you struggled in the past with learning Bookkeeping and Accounting? No matter the trauma and confusion endured, we can assure you, you can handle this education now with ease, because it was "them" who did something to "you" that was inappropriate and unfair.
It was their fault, not yours. Embrace that for this topic, please.
Take a Deep Breath and say, "You dirty RATs! I'm going to show you what happens when you play with my education!! "
Accounting Education was filled with "false and contradictory 'Dogma' ".
Dogma is "a principle or set of principles laid down by an authority as incontrovertibly true."
Almost every major report in Basic Accounting has an inappropriate name
An inordinate amount of attention was put on debits and credits which had no business being there for beginner and advanced use as they only served a singular purpose that was related to long addition and crosschecking which has been done differently with computers for over 40 years now.
With computers, you can work with positive and negative numbers and watch the computer convert those on the back end for a singular cross check that is not easy to do otherwise.
The Balance Sheet was the most feared of all Bookkeeping Reports. It was feared due to what can only have been "intentional confusion".
The name is confusing. It does not clarify "what it is"
Every major educational book and main stream media reference to it has a massively false statement. It claims it reports on a business for a singular date in time when in fact it can NOT be prepared without a start date and and end date.
The conscious and subconscious confusion is why most could never wrap their head around a report that executes a really straight forward data cross check once framed in proper context with a software that helps you see all the moving pieces at one time with your own eyes. With two screens and demo data, you can even create errors intentionlly and watch them propagate without a second click. That makes it easy to learn that which you need to know most about a Balance Sheet and it's actual role in the Game of Commerce and Healthy Bookkeeping.
You intuitively knew there was something wrong with the statement and the education, you couldn't put your finger on it and thus, you turned and ran away. As all people should do when they realize an educator or authority figure is preaching a false Dogma.
This website is designed to :
Show you what a Balance Sheet truly is
Show you how it works
Introduce you to a new software system that makes both education and bookkeeping itself far easier, because it keeps all the moving parts transparent and at your fingertips.
You don't need to "memorize" much with this system. Just keep your eyes open and you can always envision the simplicity of it all whenever needed!
Two Reports of Relevance with one that Cross Checks the other!
In 5 Step Bookkeeping there are only two relevant reports.
The Income Statement , which should have been named the "Net Income Statement", because that is in fact what it reports on AND
The Balance Sheet, which should have been named the "Comparative Net Worth Statement"
A few other reports are interesting and can be pursued after you master these first two which are in fact really quite easy once the dogma is removed and their true purposes are revealed.
The "Net Income Statement" (also poorly named the "Income Statement")
The "Net Income Statement" sums up all monetary inflows (aka Income or revenue) and it subtracts from that all monetary outflows (aka expenses) and the resulting value is called "Net Income".
If you are not in business yet, think of "Net Income" as "Take Home Pay".
Your total "Income", also known as "Gross Pay" ("gross" means "large" in German), is your hourly rate times hours worked or your "salary" for a given pay period. Those are your 'inflows" of energy even though you don't get to touch them.
Your total "Expenses" are all the deductions for Taxes and Insurance.
Your "Income" - your "Expenses" is your "take home pay" or your "net income" if we pretend you are a Small Business too.
The "Comparative Net Worth Statement" (also poorly named the "Balance Sheet")
The Balance Sheet has two different calculations on it.
Both need to come to the same single numerical value for the Bookeeper and Business Owner to have reasonable confidence that the "Net Income Statement" has been prepared properly without any eggregious errors.
It is a Cross Checking System.
either of the calculations determines "Company Net Worth" by themselves. That is also termed "Equity" or "Equity in the Company" but think about it as "Company Net Worth". Your "net worth" is the total value your heirs would get if you died today. It is a sum of the current resale value of all the things you own MINUS the sum of debts you owe.
IGNORE ANY AND ALL TEXT WHICH STATES THE BALANCE SHEET IS THE VALUE OF THE COMPANY AT A SINGLE POINT IN TIME. That is a true statement about only HALF of this report and this report does not have to be created to report that HALF. This report does much more than that. This has been the source of 90% of Accounting confusion. Bad Curriculum.
IGNORE ANY AND ALL TEXT WHICH PROVIDES AN "EQUATION' FOR THE BALANCE SHEET. THAT WAS A VERY, VERY POOR WAY TO CONVEY THIS FUNCTIONALITY.