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GIVE ME THE BASICS
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FAQs for Give Me the Basics
1. What does the equation assets = liabilities +
stockholder’s equity mean?
2. What’s the difference between the balance sheet and
the other financial statements?
3. What is the difference between stockholder’s equity and
retained earnings, and where do firms get these
numbers from?
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FAQ 1: What does the equation assets =
liabilities + stockholder’s equity mean?
• Assets, or the left hand side of the equation, represent
what the company has.
• The right hand side of the equation shows who owns the
assets.
• Liabilities represent the amount that the bank or
creditors own.
• Stockholder’s equity represents the amount that
shareholders own.
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FAQ 2: What’s the difference between the
balance sheet and the other statements?
• The numbers in balance sheet are:
• Snapshots of financial balance at certain time point (“as
of” a specific date).
• Cumulative
• The numbers in the Income Statement and Statement of
Cash Flows are:
• the change in balance over specific periods, such as
for the year “ended” on a specific date.
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FAQ 3: What is the difference between
stockholder’s equity and retained
earnings, and where do firms get these
numbers from?
• Retained earnings is a part of the stockholder’s equity
section.
• Retained earnings is net income that a firm retains for
future use.
• These earnings are retained in the firm until distributed.
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FAQ 3: What is the difference between
stockholder’s equity and retained
earnings, and where do firms get these
numbers from?
A1 = L1 + SE1
A1 = L1 + CS1 + Retained Earnings1
A1= L1 + CS1+ RE0 + RE change
A1= L1 + CS1+ RE0 + Net Income – Dividends
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THE END