Preparing Financial Statement

1
Lecture 3

• Preparing Financial Statement

2
Lecture Objectives

• Recognise relationships among financial documents
  and money management activities
• Create a system for maintaining personal
  financial records
• Develop a personal balance sheet and cash flow
  statement
• Create and implement a budget
• Calculate savings needed for achieving financial
  goals

3
What is Money Management?

• The day-to-day financial activities necessary to
• manage current personal economic resources
• while working toward long-term financial
• security

4
Successful Money Management

• Requires effective coordination of
• personal financial records
• personal financial statements
• budgeting activities

5
Personal Financial Records

• Personal and employment records
• Money management records
• Tax records
• Financial services records
• Credit records
• Consumer purchases and automobile records
• Housing, insurance, investment records

6
Personal Financial Statements

• Define current financial position.
• Track changes in financial position over time.
• Monitor progress in achieving goals.
• Reformulate plans as situations change.

7
Personal Financial Statement consists of the
following

• Personal Balance Sheet
• Personal Cash Flow Statement

8
Personal Balance Sheet

• Balance Sheet (statement of financial position)
  
• Shows Where You Are Now
• Assets - Liabilities
  Net Worth
• (What You Own) (What You
  Owe) (Your Wealth)

9
Balance Sheet
ASSETS
LIABILITIES

• What you own
• current acct.
• car
• investments
• jewellery
• furniture

• What you owe
• Housing loans
• car loan
• credit card balances
• education loans
• unpaid monthly bills
• Net Worth
• The balance is your
• wealth

10
What is Net Worth?

• You can increase your net worth by
• Increasing your savings
• Reducing your spending
• Increasing the value of your investments
• Reducing the amount you owe

Asset Liabilities Net Worth
11
What Net Worth Isnt

• Net worth IS NOT money available for use BUT
  an indication of your financial position at a
  given date

12
The Cash Flow Statement

• Also called a personal income and expenditure
  statement
• Is a summary of cash receipts and payments for a
  given period, such as a month or a year

13
STEP 1 RECORD INCOME Cash IN ? ? ?

• Wages and salaries
• Bonuses
• Interest and dividends
• Saving and investment income
• Gifts, scholarships, loans
• Money from parents etc

14
STEP 2 RECORD EXPENSESCash OUT ? ? ?

• FIXED
• Rent or loan payment
• Astro Cable TV
• Insurance

• VARIABLE
• Dry cleaning
• Phone bill
• Recreation
• Eating out
• Gifts

15
STEP 3 DETERMINE NET CASH FLOW

• Difference between Cash In and Cash Out
• Positive or Surplus if Cash In gt Cash Out
• Negative or Deficit if Cash Out gt Cash In

16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
(No Transcript)