An introduction to how assets, liabilities, and equity must balance
This Khan Academy video teaches the basics, including exactly what assets, liabilities, and equity are.
Assets give you future economic benefit. Cash is an asset. You can use it buy a house, eat at a restaurant, or make someone dance for you.
Liability is an obligation to someone else. It may be an IOU, it may be a promise to dance for someone sometime in the future.
Equity is what is left of your assets after your liabilities are paid. Equity is what you own.
In this video lesson, Sal has $250k in cash and wants to buy a $1M house.
He gets a loan from the bank for $750k to buy the house.
His balance sheet looks like this:
|
Liabilities: $750k |
Assets: $250k + $750k = $1M |
|
Equity: $1M – $750k = $250k |
This is the first in a series we’re calling DIY MBA.
This video comes from www.khanacademy.org, a non-profit dedicated to bringing a great education to anyone who wants one.
