This week, I will attack the weekly theme 'finance', which you cannot avoid in your life in a way. It is not that interesting to explain the definition of finance terminology here. I am not an expert in finance, rather just a beginner. So I believe it would be nice to make an analogy of finance terminology in our daily life to help us digest finance with familiar examples.
The followings would be the tentative plan for the following days.
- Balance Sheet
- Profit and Loss
- Cashflow (Operating / Financing / Investing)
- Net cash
- Receivable and Payable
A balance sheet hold 3 types of information: assets, liabilities, and net worth.
Assets are the ones you own now. If I find an analogy at home, your assets would be your computers, jewelries, furnitures.
Liabilities are what you owe to someone. If you borrow the money from your parents to buy your computers, that is one of your liabilities.
Net worth is the difference between what you have as assets and what you owe as liabilities. If you have only one $1000 computer, borrow money $800 from your parents to buy it, and spent $200 out of $400 cash savings, you have now $1200 assets, $800 liabilities. Your networth is $400.