When thinking about a balance sheet, it's important to distinguish between financing items and operating items Put another way, operating items are going to produce products and then sell them And then the financing items, finance the operating items So I have a source of funding, and how do I use it? I buy operating items So we now need to look at the balance sheet, try and distinguish between them So I start with some financing assets. On the screen I've got cash (a financial asset) I've now got some operating assets and some operating liabilities as well. Let's go through them quickly Accounts receivable, inventory (we definitely couldn't run the business without those kind of items), property plant and equipment (shorthanded to PP&E). Again, they're the kind of things that produce our products On the liabilities side, accounts payable A core part of operating, if we weren't offered a credit period by our suppliers, it might put us out business A core part of operating Finally, we then move on to the financing items. And they're split here between debt (the two items in the top of the orange section) and equity (the orange item at the bottom of the right hand side there) Those items are going to help fund the operational items