Calculate Financial Position © Dale R. Geiger 20111.
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Transcript of Calculate Financial Position © Dale R. Geiger 20111.
Calculate Financial Position Calculate Financial Position
© Dale R. Geiger 2011 1
Why is it Why is it usefuluseful to know an entity’s to know an entity’s financial position?financial position?
© Dale R. Geiger 2011 2
Terminal Learning ObjectiveTerminal Learning Objective• Action: Calculate Financial Position• Condition: You are a cost advisor technician with
PCAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.
• Standard: With at least 80% accuracy:• Define terminology used in basic accounting• Classify assets & liabilities• Assign value to assets• Enter relevant report data to solve Assets, Liabilities, and
Capital equation (using macros provided in Excel template)• Solve for missing variables in the balance sheet equation
© Dale R. Geiger 2011 3
Meet the Simmons FamilyMeet the Simmons Family
• Gomer, Madge and kids:• Bert, Lacy and baby Maddie• Stunt doubles for a popular cartoon family
• Task: Calculate the family’s Financial Position
© Dale R. Geiger 2011 4
What is Financial Position?What is Financial Position?
• Financial position is represented by the equation:
Assets – Liabilities = Financial Position Or
Assets = Liabilities + Financial Position• Financial Position may also be called Equity or
Net Assets
© Dale R. Geiger 2011 5
What’s an Asset?What’s an Asset?
• An Asset is:• Something you OWN • Represents FUTURE BENEFIT
• What kinds of assets might the Simmons family own?
© Dale R. Geiger 2011 6
What’s an Asset?What’s an Asset?
• An Asset is:• Something you OWN • Represents FUTURE BENEFIT
• What kinds of assets might the Simmons family own?
© Dale R. Geiger 2011 7
What’s an Asset?What’s an Asset?
• An Asset is:• Something you OWN • Represents FUTURE BENEFIT
• What kinds of assets might the Simmons family own?
© Dale R. Geiger 2011 8
What’s an Asset?What’s an Asset?
• An Asset is:• Something you OWN • Represents FUTURE BENEFIT
• What kinds of assets might the Simmons family own?
© Dale R. Geiger 2011 9
What’s a Liability?What’s a Liability?
• A Liability is:• Something you OWE• Represents FUTURE SACRIFICE• A creditor’s CLAIM against your assets
• What kinds of Liabilities might the Simmons family have?
© Dale R. Geiger 2011 10
What’s a Liability?What’s a Liability?
• A Liability is:• Something you OWE• Represents FUTURE SACRIFICE• A creditor’s CLAIM against your assets
• What kinds of Liabilities might the Simmons family have?
© Dale R. Geiger 2011 11
What’s a Liability?What’s a Liability?
• A Liability is:• Something you OWE• Represents FUTURE SACRIFICE• A creditor’s CLAIM against your assets
• What kinds of Liabilities might the Simmons family have?
© Dale R. Geiger 2011 12
What’s a Liability?What’s a Liability?
• A Liability is:• Something you OWE• Represents FUTURE SACRIFICE• A CREDITOR’S CLAIM against your assets
• What kinds of Liabilities might the Simmons family have?
© Dale R. Geiger 2011 13
What’s a Liability?What’s a Liability?
• A Liability is:• Something you OWE• Represents FUTURE SACRIFICE• A CREDITOR’S CLAIM against your assets
• What kinds of Liabilities might the Simmons family have?
© Dale R. Geiger 2011 14
Check on LearningCheck on Learning
• What is the equation to represent financial position?
• Which element of the equation represents future benefits of the entity?
© Dale R. Geiger 2011 15
Sorting the Data Sorting the Data • Madge’s stack of papers contains the following:
• Deed to the house $230,000• Mortgage note on house 225,000• Title to the car 6,000• Grocery receipts 400• Furniture receipts 3,000• Credit card statements 2,300• Property tax bill 2,500 • The kids’ birth certificates -0-• Hospital bill for Maddie 950• Clothing receipts 750• Bank Statement (reconciled balance) 305.47• Cash in Madge’s purse 20
• Task: Calculate the Simmons’ Net Worth© Dale R. Geiger 2011
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Sorting the Data Sorting the Data
© Dale R. Geiger 201117
Sorting the Data Sorting the Data
© Dale R. Geiger 201118
Classifying Assets & LiabilitiesClassifying Assets & Liabilities
Assets:House $230,000Car 6,000Furniture 3,000Clothing 750Cash (Bank + purse) 327.47
Total $240,077.47
Liabilities:Mortgage $225,000Credit Card 2,300Property Tax 2,500Hospital 950Total $230,750
Financial Position or Net Worth = $240,077.47 - $230,750 = $9,327.47
© Dale R. Geiger 2011 19
Graphic SolutionGraphic Solution
© Dale R. Geiger 2011 20
Check on LearningCheck on Learning
• Which of the following would be considered a liability?• Checking account $327• Credit card account $246• Groceries $50
• Assuming these are the only relevant items, what is the financial position?
© Dale R. Geiger 2011 21
Reporting Financial PositionReporting Financial Position
• The Statement of Financial Position presents the financial position of a government entity as of a SINGLE DATE.
• May also be called:• Balance Sheet (for-profit entity)• Statement of Net Assets (not-for-profit entity)• Statement of Net Worth (individual or family)
© Dale R. Geiger 2011 22
Statement of Financial PositionStatement of Financial Position
Assets:House $230,000Car 6,000Furniture 3,000Clothing 750Cash (Bank + purse) 327.47
Total $240,077.47
Liabilities:Mortgage $225,000Credit Card 2,300Property Tax 2,500Hospital 950Total Liab. $230,750Net Worth 9,327.47
Total $240,077.47
© Dale R. Geiger 2011 23
Check on LearningCheck on Learning
• What is the name of the report that presents a government organization’s financial position? An individual’s?
• What is the time frame of this report?
© Dale R. Geiger 2011 24
QuestionsQuestions
• What about the groceries?• Items that will be consumed during the current
month are considered Expenses• What about the kids?• First, would they be assets or liabilities? • Second, they aren’t “owned”• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption: • Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011 25
QuestionsQuestions
• What about the groceries?• Items purchased and consumed during the current
period are considered Expenses• What about the kids?• First, would they be assets or liabilities? • Second, they aren’t “owned”• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption: • Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011 26
QuestionsQuestions
• What about the groceries?• Items purchased and consumed during the current
period are considered Expenses• What about the kids?• First, would they be assets or liabilities? • Second, they aren’t “owned”• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption: • Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011 27
QuestionsQuestions
• What about the groceries?• Items purchased and consumed during the current
period are considered Expenses• What about the kids?• First, would they be assets or liabilities? • Second, they aren’t “owned”• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption: • Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011 28
QuestionsQuestions
• What about the groceries?• Items purchased and consumed during the current
period are considered Expenses• What about the kids?• First, would they be assets or liabilities? • Second, they aren’t “owned”• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption: • Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011 29
QuestionsQuestions
• What about the groceries?• Items purchased and consumed during the current
period are considered Expenses• What about the kids?• First, would they be assets or liabilities? • Second, they aren’t “owned”• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption: • Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011 30
QuestionsQuestions• Isn’t the house worth more now than when they
bought it?• Possibly, but it’s difficult to objectively determine its
value• Cost Principle:• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s length transaction
• Is it necessary to report the 47₵ from the bank account?
• Materiality Constraint: • Report only the level of detail that will affect a user’s
decision© Dale R. Geiger 2011 31
QuestionsQuestions• Isn’t the house worth more now than when they
bought it?• Possibly, but it’s difficult to objectively determine its
value• Cost Principle:• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s length transaction
• Is it necessary to report the 47₵ from the bank account?
• Materiality Constraint: • Report only the level of detail that will affect a user’s
decision© Dale R. Geiger 2011 32
QuestionsQuestions• Isn’t the house worth more now than when they
bought it?• Possibly, but it’s difficult to objectively determine its
value• Cost Principle:• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s length transaction
• Is it necessary to report the 47₵ from the bank account?
• Materiality Constraint: • Report only the level of detail that will affect a user’s
decision© Dale R. Geiger 2011 33
QuestionsQuestions• Isn’t the house worth more now than when they
bought it?• Possibly, but it’s difficult to objectively determine its
value• Cost Principle:• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s length transaction
• Is it necessary to report the 47₵ from the bank account?
• Materiality Constraint: • Report only the level of detail that will affect a user’s
decision© Dale R. Geiger 2011 34
Check on LearningCheck on Learning
• What principle defines the value that should be reported for an asset on the Statement of Financial Position?
• What constraint prevents reporting insignificant amounts that will not affect a user’s decision?
© Dale R. Geiger 2011 35
Practical ExercisePractical Exercise
© Dale R. Geiger 2011 36
Financial Position SpreadsheetFinancial Position SpreadsheetEnter data in the white spaces
© Dale R. Geiger 2011 37
Financial Position SpreadsheetFinancial Position Spreadsheet
Use Tabs to Navigate
© Dale R. Geiger 2011 38
Financial Position SpreadsheetFinancial Position Spreadsheet
The spreadsheet uses the data you entered to produce the Statement of Financial Position and the pie graph
© Dale R. Geiger 2011 39
Practical ExercisePractical Exercise
© Dale R. Geiger 2011 40
