Assets, liabilities and stockholders’ equity are key statistics that can be found on any public company's balance sheet. Assets are resources controlled by a corporation that provide a future economic benefit to the business. Liabilities act as obligations on a company’s assets because the company must repay the debt to another business or individual. Stockholders’ equity demonstrates the investment that shareholders have in the business.
All of this information goes on a balance sheet. A balance sheet in combination with other financial statements will provide an overview of how well a business is performing.
The basic formula that comprises the information on a balance sheet is fairly straightforward. Assets equal liabilities plus stockholders’ equity. This equation makes it relatively easy to calculate a company’s assets, liabilities and stockholders’ equity.
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What Are the Total Assets?
First, determine the corporation’s total current assets. A corporation’s current assets consist of items like cash, accounts receivable, inventory, raw materials and prepaid rent. A current asset is a resource the company expects to convert into cash within one year. For instance, a company that has $10,000 cash, $15,000 accounts receivable, $5,500 inventory and $1,200 prepaid rent has total current assets of $31,700.
Next, identify all long-term assets such as buildings, land, equipment and office furniture. A long-term asset will be converted into cash in over one year. For example, assume a corporation has $25,000 equipment, $40,000 land and $75,000 building. In this instance, the corporation has $140,000 total long-term assets.
Finally, add total long-term assets with total current assets to determine a corporation’s total assets. Assuming a corporation has $140,000 in long-term assets and $31,700 in current assets, the company will have total assets of $171,700.
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What Are the Total Liabilities?
First, tally the corporation’s current liabilities, which are obligations the corporation must pay within one year. Examples of current liabilities include accounts payable, notes due within one year, salaries and wages payable, interest payable and taxes payable. A company with $20,000 accounts payable, interest payable of $4,500, wages and salaries payable of $12,000, and interest payable of $3,200 has total current liabilities of $39,700.
Next, verify long-term liabilities. A long-term liability is an obligation that the company will incur in over one year. Long-term liabilities include notes payable, bonds payable, mortgages payable and leases. Add up all of the long-term liabilities to determine total long-term liabilities. For instance, a corporation with $40,000 notes payable, $30,000 mortgages payable and $20,000 bonds payable has total long-term liabilities of $90,000.
Finally, sum the total current liabilities with the total long-term liabilities. If current liabilities equal $39,700 and total long-term liabilities equal $90,000, then the company's total liabilities are $129,700.
Read More: Difference Between Debt & Liabilities
How to Calculate Stockholders' Equity
There are a few ways to calculate stockholder's equity according to Accounting Tools. Equity can also be calculated using accounts in the general ledger in addition to the basic formula for corporate assets.
Using the original formula, you can now subtract total liabilities from total assets to calculate stockholders’ equity. Once you compute total assets and total liabilities, it becomes easy to compute stockholders’ equity. Stockholders’ equity equals total assets minus total liabilities. If total assets equal $171,700 and total liabilities equal $129,700 then stockholders’ equity equals $42,000.
Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.