Colin listed his assets and liabilities on a personal balance sheet. Which statement is true about the total assets and the total liabilities?

Colin listed his assets and liabilities on a personal balance sheet. Which statement is true about the total assets and the total liabilities?

• A. The total of the assets is greater than the total of the liabilities.
• B. The total of the assets equals the total of the liabilities.
• C. The total of the liabilities is greater than the total of the assets.
• D. They are not related.

Answer: (A)

On a personal balance sheet, assets are what you own and liabilities are what you owe. The basic relationship is assets = liabilities + equity (net worth). Since most people have some positive net worth, the total assets tend to be greater than the total liabilities, with the difference representing equity. If net worth were zero, assets would equal liabilities; if net worth were negative, assets would be less than liabilities. So the statement that the total assets are greater than the total liabilities reflects the common situation on a personal balance sheet.

On a personal balance sheet, assets are what you own and liabilities are what you owe. The basic relationship is assets = liabilities + equity (net worth). Since most people have some positive net worth, the total assets tend to be greater than the total liabilities, with the difference representing equity. If net worth were zero, assets would equal liabilities; if net worth were negative, assets would be less than liabilities. So the statement that the total assets are greater than the total liabilities reflects the common situation on a personal balance sheet.