Balance Sheet
Based on these transactions, the balance sheet would look as follows:
Balance Sheet: Ending January 1, 2005
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Assets must equal Liabilities + Shareholders’ Equity by definition. They are two sides of the same coin.
When the lemonade stand’s assets increased by $150, this was accompanied by a corresponding increase in liabilities and shareholders’ equity. There had to be a source of cash (it had to come from somewhere). This is why the balance sheet must always balance.
In reality, companies have more assets than just cash.
Companies use cash to buy inventories and fixed assets (e.g., land, buildings, machinery), and to make investments.
Cash is reduced and other assets are increased.
Any change in assets or liabilities or shareholders’ equity is accompanied by an offsetting change that keeps the balance sheet in balance.