Unit 3 - Personal Financial Statements

income before taxes and any expenses are paid

income after taxes and expenses are paid

(Total Revenue + Gains) - (Total Expenses + Losses)

Expenses that are the same each month (like rent)

Expenses that can vary each month (like groceries)

shows the financial performance over a fixed period of time

Summary of all the income (money coming in) and expenditures (money going out) over a fixed period of time

overall change in cash over a fixed period

Total cash inflow - total cash outflow

accumulated cash over the period

lost cash over the period

details everything you own (assets) and everything you owe to others (liabilities) at a particular moment in time

Assets - Liabilities

Cash or cash equivalents (like money in checking/savings accounts)

Assets that could convert into cash (like cars or a laptop) but it would take a while and the value will have probably decreased/depreciated since purchase

the price you would sell something for today

how many months you can pay household expenses out of liquid assets in the absense of an income

$\frac{liquid.assets}{monthly.expenses}$

the % of your after-tax income that you save

$\frac{monthly.savings}{net.monthly.income}$

the % of your assets that you've financed with debt (loaning money to buy a house or a car)

$\frac{total.debt}{total.assets}$

the % of your after-tax income that pays for your debts

$\frac{total.monthly.debt.payments}{net.monthly.income}$

the % of your before-tax income that is used to pay Mortgage Debt Service (all costs associated with owning a home -- mortgage payments, property tax, home insurance)

$\frac{mortgage.debt.service}{gross.monthly.income}$

practice of spreading an intangible asset's cost over the asset's useful life -- paying off a debt over time with equal payments

accounts for decreases in the value of fixed, tangible assets over their useful life

$\frac{Purchase.Price.of.Asset - Salvage.Value}{Estimated.Useful.Life.of.Asset}$

Determine Total Depreciation
Calculate the sum of the years digits (n...+3+2+1= x)
Depreciation in Year 1: (Total Depreciation - (n/x)) = depreciation from Year 1
Depcreatiation in Year 2: (Total Depreciation - ((n-1)/x)) = depreciation from Year 2
Continue until you get to the final year, with the numerator being 1