Educational material from 
What you will learn
- Check that assets equal liabilities plus equity.
- Follow how a loan changes both cash and debt.
- Distinguish an equipment purchase from an immediate expense in this model.
Start with a specific day and a common unit
Our fictional company has SEK 20,000 in cash and equipment with a carrying amount of SEK 30,000. Total assets are therefore SEK 50,000. On the other side are a loan of SEK 20,000 and equity of SEK 30,000. Check: 50,000 = 20,000 + 30,000.
Cash is only one of the assets. Saying the business has SEK 50,000 of assets does not mean the whole amount is in the bank. The equipment’s carrying amount also does not guarantee the price someone would pay for it. Both sides refer to the same point in time and use kronor, rather than share prices.
If the table does not fit, scroll it sideways.
| Item | Start | After loan | After equipment purchase |
|---|---|---|---|
| Cash | SEK 20,000 | SEK 30,000 | SEK 20,000 |
| Equipment, carrying amount | SEK 30,000 | SEK 30,000 | SEK 40,000 |
| Total assets | SEK 50,000 | SEK 60,000 | SEK 60,000 |
| Loan liability | SEK 20,000 | SEK 30,000 | SEK 30,000 |
| Equity | SEK 30,000 | SEK 30,000 | SEK 30,000 |
A new loan increases cash and debt together
The business borrows a further SEK 10,000 and receives the full amount in its bank account. Cash rises to SEK 30,000 and assets to SEK 60,000. Loan debt also rises to SEK 30,000. Equity remains SEK 30,000. The check after borrowing is 60,000 = 30,000 + 30,000.
The loan has improved today’s cash balance but created no sales revenue or profit in the example. The business has a matching obligation to repay it. To assess when the money is needed again, you must also read the loan terms and maturity; the size of the cash balance alone does not answer that question.
Buying equipment moves value between two assets
Next, the business buys additional equipment for SEK 10,000 in cash. In this simplified model the whole purchase is immediately recognised as an equipment asset. Cash falls to SEK 20,000 and the combined carrying amount of equipment rises to SEK 40,000. Total assets stay at SEK 60,000.
Debt and equity do not change in this immediate step. We assume no fees, no VAT and no depreciation at the time of purchase. Later depreciation can reduce profit and carrying amount without another payment at that time. The example is therefore not a general instruction for how every purchase should be accounted for.
Read the snapshot alongside the period’s statements
The balance sheet shows what remains on a particular day. The income statement explains a period’s revenue and expenses, while the cash-flow statement follows payments. Our borrowing and equipment purchase therefore leave different traces in these statements, even though both affect the bank balance.
When reviewing an actual annual report, record the balance-sheet date, unit and items you totalled. Also check whether comparisons refer to a group or an individual company. Use Investiq’s company-search guide to check identity and read the report separately. This exercise is calculated manually and promises no automatic report interpretation in the app.
Try it yourself
Another business has SEK 8,000 in cash, equipment of SEK 12,000 and debt of SEK 7,000. It borrows SEK 5,000, then buys equipment for SEK 3,000 in cash using the same assumptions as above. What are ending cash, assets, debt and equity?
Show the solution and explanation
Ending cash is SEK 10,000, assets are SEK 25,000, debt is SEK 12,000 and equity is SEK 13,000.
Opening equity is 20,000 − 7,000 = 13,000. Cash: 8,000 + 5,000 − 3,000 = 10,000. Equipment: 12,000 + 3,000 = 15,000. Assets: 10,000 + 15,000 = 25,000 = 12,000 + 13,000.
Check your understanding
Does a new loan automatically create profit?
No. Cash and debt increase by the same amount in the model.
Are all assets money available for immediate payment?
No. Equipment and other assets are different from cash.
Practise with virtual money
Try what you just learned in a practice portfolio with virtual money. You don't deposit any real money.
How the practice portfolio worksKeep learning and practising
More lessons on this topic
Read company statements
Sources and examples
- SEC: assets, liabilities, equity and receivables
- SEC: revenue, expenses and profit in an income statement
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
