Flashcards in Introduction to Personal Financial Statements Deck (12):
Who uses personal financial statements?
An individual or group of related individuals, including a husband and wife, or a family unit. They are not prepared for a business enterprise.
When are personal financial statements needed?
They are typically needed in conjunction with personal borrowing, personal financial planning, contract requirements, or legal requirements
Examples: Part of an application for a major loan to be backed by personal assets.
As required by law for elected and other public officials
What financial statements are typically appropriate for personal financial statements?
1.) Statement of Financial Condition (Balance Sheet) - Required
2.) A statement of changes in Net Worth - Optional, but usually provided
Are comparative statements required for Personal Financial Statements?
Which financial statements are not appropriate for Personal Financial Statements?
1.) Income Statement
2.) Statement of Cash Flows
What basis of accounting is the Statement of Financial Condition for Personal Financial Statements based on?
Accrual accounting using fair value (current value)
How is "Current Value" defined?
The amount at which the buyer and seller would be willing to exchange an item. Not a forced sale.
What should the Statement of Financial Condition for Personal Financials report?
1.) Assets at estimated current value
2.) Liabilities at estimated current amounts
3.) Personal net worth as the difference between 1 and 2
4.) Estimated income taxes are calculated as if the assets had been realized and liabilities had been liquidated
What is the purpose of a "Statement of changes in Net Worth" for personal financials?
To show the amounts and causes of the changes in net worth for an individual, a husband and wife, or a family unit during a period. Recognized on accrual basis.
What format does the personal statement of changes in Net Worth use?
The Standard Change Format
+Increases in Est. Values of Assets
-Decreases in Est. Values of Assets
-Increases in Est. Values of Liabilities
+Decreases in Est. Values of Liabilities
=Net Worth at 12/31/XX
When can noncancelable commitments to pay future sums be presented at discounted amounts for personal financials?
1.) For a fixed/determinable amount
2.) Are not contingent
3.) Do not required future service of performance