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FIN4901EF Managing Personal Finances
Unit 2 Analysing and Evaluating Personal Information
FIN4901EF.Unit 2
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FIN4901EF.Unit 2
Learning Outcome
1. Explain the interlocking network of financial plans and statements. 2. Prepare a personal balance sheet. 3. Draft a personal income and expense statement. 4. Develop a good record-keeping system and calculate ratios to
interpret personal financial statements.
5. Construct a cash budget and use it to monitor and control spending.
6. Apply time value of money concepts to put a monetary value on financial goals.
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FIN4901EF.Unit 2
Table of Content
• The role of financial statements in financial planning • Personal balance sheet: assets, liabilities and net worth • Personal income and
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▫ All assets regardless of category, are recorded on the balance
sheet at their current fair market value, either the actual value of the asset or the market price, which may differ considerably from their original purchase price. ▫ Four broad categories: liquid assets, investments, real property, and personal property.
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FIN4901EF.Unit 2
Personal Balance Sheet: Assets, Liabilities and Net Worth
• Assets: The Things You Own ▫ Liquid assets: holding in the form of cash or that can readily be converted to cash with little or no loss in value. E.g. cash on hand, savings account, deposit that mature within 1 year, etc.
▫ Investments: such as stocks, bonds, mutual funds, and real estate that are acquired in order to earn a return rather than provide a service.
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FIN4901EF.Unit 2
Personal Balance Sheet: Assets,
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as
Accounting is commonly described as the language of business. It is very important for all business owners to have very good understanding of their finances. Having the knowledge of your business finance, you will know where the money is going. Every business owner should have a good understanding of finance. To have a good understanding business owners needs to understand basic accounting steeps, how does accounting play a role in their business, how to define a financial statement and how the omission of any of these steps would affect the success of a business. Once you have an understanding of accounting/finance and the how it plays
Assets are to be recorded and valued based of the type of asset there are.
The purpose of this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees.
“Assets are economic resources that have expected future benefits to the business” (Baker, 2014). There are short and long term assets. Short-term assets are assets that will be utilized within a year. Examples of short-term assets are cash, inventory, and accounts receivable. Long-term assets are assets that will continue to beneficial longer than a year. Examples of long-term assets are buildings, land, and equipment.
The four different types of assets are Current Assets, Long-Term Assets, PPE (Property, Plant & Equipment), and Intangible Assets. Team B’s task was to define current assets. A current asset is an asset which can either be converted to cash or used to pay current liabilities within one year. Typical current assets include
4. Financial assets are receivables between companies where they both agree with the contractual rights that they will receive cash or other financial assets (Donald Kieso).
Understanding the sources (incomes) and uses (expenses) of funds, and the budget deficit/surplus that results, are core accounting measures to consider in short and long term personal financial planning. Also, grasping key concepts like how your salary/wages are earned and segmented/taxed is important in determining your net incomes. How to approach deficits and surpluses and their associated action plans come from sound accounting understanding. Accounting develops controls on how to deal with budget deficits like increasing income, reducing expenses and borrowing. Understanding how sunk costs and opportunity costs factor into alternative choices and borrowing come to us from sound accounting knowledge and play a role in personal planning. Lastly, through various standard reporting approaches, we, though accounting, can develop the ability to look at current and future personal finance decisions and health via income statements, balance sheets, ratios and other common size book keeping measures.
The items identified as potentially causing ordinary income or loss are usually referred to as “hot assets,” while all other assets are referred to as “cold assets.”
• Introduce and exercise tools and concepts of financial-statement analysis (including financial ratios, break-even analysis, and cash-flow statements).
The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).
Accountants, business owners, investors, creditors and employees use four basic financial statements of an organization to determine the financial well-being and future earnings potential of that organization. Financial statements are a key tool in seeing and understanding the past, present and future condition of an organization. What are these financial statements and what do they mean to the reader? Do the financial statements mean something completely different to an investor, creditor, and employee?
This essay will begin to look at the main financial statements used by decision makers in businesses today. This essay will go into detail about the income statement and statement of financial position and whether these two statements provide decision makers with their financial information adequately. This essay will also include the various advantages and disadvantages of each financial statement as well as describing whom the decision makers are and why financial statements are important to them. A conclusion will be present at the end of this essay to demonstrate an overall view of whether financial statements are beneficial to decision makers.
Assets can be hard goods such as computers and equipment, but can also be information and intellectual property.