Net Worth

The net worth of an organization or a business entity can be defined as the amount with which the total assets of the entity exceed the total liabilities. The concept of the net worth is equally true for the individuals and the business entities and it is used to determine the worth or the value of the business entities and individuals. A steady and constant increase in the net worth of the business entity indicates the good financial health of the entity. The net worth of the entity may start depleting due to the annual operational losses. Moreover the net worth of the business entity decreases if the liabilities of the entity exceed its assets. In the context of accounting or business the net worth of a business can be described with its book value or the share holder equity of the business owner. Consider an example of an individual with following worth of assets. The value of primary residence is $250,000. The investment details of the individual are of the worth $100,000 including the value of the automobile and other accessories is $25,000. The net worth of the individual can be calculated as follows:- ([$250,000 + $100,000 + $25,000] – [$100,000 + $10,000])= $265,000 Now assume that after five years the total assets of the individual are as follows. The value of residence of individual is now $225,000, investment portfolio is now $120,000, savings of the individual are $20,000 and other assets include $15,000. The mortgage loan regarding house is $80,000 where as the automobile is paid off. The net worth of the individual is now $300,000.

Other Related Accounting Articles:

Recommended Books !


Download E accounting book in MS-word format for just 20 $ - Click here to Download

Leave a Reply

Your email address will not be published. Required fields are marked *