In between the balance sheets

A Dictionary of Finance

The corporate balance sheet explained—from the reason companies make one, down to the obscure terms that appear on it.

If you’ve ever mixed up your left and right, you could just as easily mix up your assets and liabilities. One of them goes on the left-hand side of the balance sheet, while the other goes on the right. Which one goes where?

Okay, the assets are on the left. But you’ll find this and many other details of the corporate balance sheet explained in this week’s podcast.

Marius Cara, who works in the Finance Directorate of the European Investment Bank, explains the balance sheet and the terms you’ll find on it. That includes:

• Cash accounting, where you wait until the money comes in before recording the transaction
• Accruals accounting, which makes it possible for you to record a transaction as soon as you know the money will be paid to you, but before you receive the cash
• Accounts receivable, which are assets because they are things you’re expecting to receive
• Accounts payable, which are things you’ll have to pay and are therefore liabilities.

Get lots of little tips from Marius, who has even been an auditor in a war zone. For example, how do you pronounce GAAP? The answer is, just like the word “gap.” It stands for the US accounting rules called Generally Accepted Accounting Principles. So we’ve already saved you the embarrassment of calling them “gaap rules,” as if you were some kind of bleating lamb. You’re welcome.

On the podcast, you’ll also discover that Allar is an asset. (That’s not because of his incisive questioning or his charming smile. It’s just because he shows up for work here at the European Investment Bank. For all companies, employees are recorded as assets.)

Get new episodes like this every week, when you subscribe to A Dictionary of Finance in the iTunes podcast app or on other podcast platforms like Stitcher. We’d love to hear from you with suggestions for future podcast topics. Tweet them to us at @EIBMatt or @AllarTankler.

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