Center of Conflict

The Financial Structure of the firm is at the center of this conflict. Let's begin by identifying the stakeholders and their agendas.

We must make a distinction between "The Company" and "The People That Have a Claim on the Company". The Assets are The Company, and they are listed on the left side of the Balance Sheet. The Liabilities and Owner's Equity on the right side represent the people who paid for the Assets and their current stake. If a bulldozer scraped the Assets into a pile, it would consist of cash, invoices, inventory, bricks, and equipment. Next to the pile a row of people would line up to make a claim a vendor, banker, bondholder, stockholder, and (representing Retained Earnings) a manager. This is why a Balance Sheet always balances. The left is "what is owned"; the right is "who owns it" (see the example below).