Posted: August 29th, 2021

In this lesson you will practice creating a balance sheet and cash

In this lesson you will practice creating a balance sheet and cash flow statement. You will apply this experience to your own financial statements.

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Your balance sheet should look similar to the one found on page 74 of your textbook (Table 3-2). Your cash flow statement should look similar to the one found on page 77 (Table 3-3) of your textbook. For the balance sheet you should have between 3-4 columns, for the cash flow statement, you should have 3 columns.

**Hint: The far right column on each sheet is a percentage. Did you figure out where are they getting that percentage from?

On the balance sheet, your total assets represents the 100% baseline, so (look on page 74) the total assets were $372, 620→ $372,620/$372,620= 100%. Now we take each individual asset and divide it by $372,620. For instance, cash on hand was 260→ 260/372,620= 0.0006977, move the decimal place twice (because in order to find a percent we need to multiply the number by 100) and that gives you 0.07%; cash on hand represents 0.07% of the total assets.

This also applies to the liabilities on the balance sheet. All of the individual liabilities are divided by the total liabilities ($372,620). For instance, the dentist bill due was 120→ 120/372,620 is 0.000322, move the decimal place twice and you have 0.03%; the dentist bill represents 0.03% of the total liabilities.

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Now for the cash flow statement. It is just like the balance sheet in that we are going to use a number as our baseline. In the income section, it is the total income that represents our 100%. See page 77 (Table 3-3); all of our individual income figures are going to be divided by the total income. For instance, total income is $89,000: Victor’s gross salary is 63,180→ 63,180/89,000= 0.70988, move the decimal places twice and Victor’s gross salary represents 70.99% of the total income.

In the expenditures section, the total expenses represents our 100% baseline. All of the individual expenditures will be divided by the total expenses figure. In this case, the total expenses is $89,000. The food expense in this statement is 4,900→ 4,900/89,000= 0.05505, move the decimal place twice and the food expense represents 5.51% of the total expenses.

**Complete problem 5 below which is taken from the Do the Math exercises on page 97 of your textbook. Create a balance sheet by using tables in Word or by using an Excel spreadsheet.

Construct Financial Statements. Thomas Green has been a retail salesclerk for six years. At age 35, he is divorced with one child, Amanda, age 7. Thomas’s salary is $36,000 per year. He regularly receives $400 per month for child support from Amanda’s mother. Thomas invests $100 each month ($50 in his mutual fund and $50 in U.S. savings bonds). Using the following information, construct a balance sheet and a cash-flow statement for Thomas.

ASSETS Amount
Vested retirement benefits (no employee contribution) $3,000
Money market account (includes $150 of interest earned last year) 5,000
Mutual fund (includes $200 of reinvested dividend income from last year) 4,000
Checking account 1,000
Personal property 5,000
Automobile 3,000
U.S. savings bonds 3,000

 

LIABILITIES Outstanding Balance
Dental bill (pays $25 per month and is included in uninsured medical/dental) $ 450
Visa (pays $100 per month) 1,500
Student loan (pays $100 per month) 7,500

 

ANNUAL EXPENSES Amount
Auto insurance $780
Rent 9,100
Utilities 1,200
Phone 680
Cable 360
Food 3,000
Uninsured medical/dental 1,000

 

ANNUAL EXPENSES Amount
Dry cleaning $480
Personal care  420
Gas, maintenance, license 2,120
Clothes 500
Entertainment 1,700
Vacations/visitation travel 1,300
Child care 3,820
Gifts 400
Miscellaneous 300
Taxes 4,600
Health insurance 2,440

For additional assistance completing this week’s assignment, review the following study guide:  Week 2 Study Guide.

 

Garman, E. T., & Forgue, R. E. (2015). Personal Finance (12th ed.).Mason, OH: Cengage Learning.

 

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