Reference no: EM132367126

Question

Shouldn't "liabilities" be negative numbers on a double-entry balance sheet? If liabilities represent debts owed, wouldn't they be subtracted from assets?

For example, "the liabilities of the Smith Company are $120,000 and the owner's equity is $232,000. What is the the amount of Smith's total assets?" It seems logical that I would subtract the $120,000 from the $232,000 for total assets of $112,000, but if Assets = Owners Equity + Liabilities, then Smith's total assets would be $352,000. Unless the liabilities are a negative number, then $232,000 + (-$120,000) = $112,000. I AM SO CONFUSED.

One site shows this example:

· Total assets: $170 billion

· Total liabilities: $120 billion

· Total shareholders' equity: $50 billion

If we calculate the right-hand side of the accounting equation (equity + liabilities), we arrive at ($50 billion + $120 billion) = $170 billion, which matches the value of the assets reported by the company.

If the company is worth $170 billion but owes $120 billion, wouldn't they actually be "worth" the difference of $50 billion (plus shareholders equity)?