Calculating Your Own Net Worth
Now that you have learned about the balance sheet, you are going to prepare one for your personal financial situation. The major difference between a balance sheet for a firm and that for an individual is that we refer to the residual value, the equity, as "net worth". Net worth is a true measure of wealth that individuals build up over their lives. (Be forewarned, though, that most college students have a negative net worth!)
Take your time to walk through each line item on the balance sheet, and think about whether that line item is applicable for you. Remember, when we are discussing assets, we are thinking about things (of significant value) that you own. When we discuss liabilities, we are thinking about bills and debts that you owe at this point in time.
When calculating the net worth (or equity) part of the balance sheet, just use the fundamental accounting equation: Assets = Liabilities + Equity. Are you surprised with the results?
Bring your personal balance sheet to class for our discussion. Don't worry, you won't have to reveal any secrets about your financial situation.
* Deeper understanding of the fundamental accounting equation Assets = Liabilities + Owners Equity.