Your Financial Statements and Plans: Practicing Financial Statements Part II

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Chapter 2

• Your Financial Statements and Plans Practicing
  Financial Statements Part II

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Financial Statement Practice

• Net Worth Statement
• Cash Flow Statement

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Preparing Financial Statements

• Create list of needed information
• Assets, debts, income and expenses
• Collect information
• Separate information into categories
• Get Started!

4
José and Maria Martinez

• Prepare their
• Net Worth Statement
• Cash Flow Statement

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José and Maria Martinez

• Josés annual salary 24,000
• Marias annual salary 16,000
• Checking account 2,800
• Savings account 5,200
• MasterCard debt 1,200
• Monthly payment on Mcard 200
• Monthly rent 405
• Utilities (unpaid) 120

Payment on earlier debt expenses creating new
debt will be categorized by type of expense.
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José and Maria Martinez

• Retirement account 2,500
• Car payment, monthly 235
• Auto insurance, qtrly, due this month 300
• Food, monthly 225
• Auto 6,000
• Furnishings 2,000
• Auto loan outstanding 3,000
• Other personal property 800
• Other expenses, monthly 175

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Separate info into categories

• Josés annual salary Income
• Marias annual salary Income
• Checking account Asset
• Savings account Asset
• MasterCard debt Debt
• Monthly payment on MCard Expense
• Monthly rent Expense
• Utilities Debt Expense

An expense only because they carried over
debt from a time when they did not track specific
types of expenses.
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Separate info into categories

• Retirement account Asset
• Car payment, monthly Expense
• Auto insurance Debt Expense
• Food, monthly Expense
• Auto Asset
• Furnishings Asset
• Auto loan outstanding Debt
• Other personal property Asset
• Other expenses, monthly Expense

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Making the Net Worth Statement

• Checking account 2,800
• Savings account 5,200
• Retirement account 2,500
• Auto 6,000
• Furnishings 2,000
• Other personal property 800
• Total assets 19,300

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Making the Net Worth Statement

• Utilities 120
• Auto insurance due 300
• Credit card debt 1,200
• Auto loan 3,000
• Total debt 4,620

Total assets Total debts Net worth 19,300 -
4,620 14,680
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Annual Cash Flow Statement

• Josés net salary 24,000
• Marias net salary 16,000
• Rent 405 x 12 4,860
• Utilities 120 x 12 1,440
• Car payment 235 x 12 2,820
• Food 225 x 12 2,700
• Auto insurance 300 x 4 1,200
• Pay off old MC debt 1,200
• Other expenses 175 x 12 2,100
• Available to save 23,680

16,320 in expenses, 1,360 per month
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Martinezs Financial Status?

• Months living expenses
• 8,000/1,360 5.88
• Very Good!
• Savings ratio
• 23,860/40,000 59.6
• Phenomenal!
• Solvency ratio
• 14,680/19,300 76
• Great!

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Any Inconsistencies?

• Available to invest is large
• Assets are small, particularly savings

Could they have left out anything?
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Questions?