CH. 16-1PERSONAL FINANCIAL STATEMENTS

Goals: Explain the basics of money

management. Create a personal balance sheet. Develop a personal cash flow statement.

Key Terms:-Money Management-Personal assets-Net worth-Cash flow statement

MONEY MANAGEMENT BASICS

Money management refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants.

The process of good money management should start with knowing your current financial status.

PERSONAL BALANCE SHEET

A balance sheet is a record of assets and liabilities at a point in time. It reports what a family owns as well as owes.

Assets: items of value are personal assets. Assets include such things as money in bank accounts, investments, furniture, clothing, automobiles, jewelry, and rare coins. The current value of all assets of an individual or family is the first thing stated on a balance sheet.

Liabilities: amounts owed to others. Theses debts may include credit card balances, car loans, a home mortgage, or personal loans. A listing of your liabilities is the second item on a balance sheet.

Net Worth: the difference between a person’s assets and liabilities.

PERSONAL CASH FLOW STATEMENT

A balance sheet reports assets, liabilities, and net worth on a given date.

Cash Flow Statement: reports net wages and other income along with spending for a period, such as for a month.

Cash Inflows: The first part of a cash flow statement. The money you have available to spend as a result of working or from other income, such as interest earned on your savings.

Cash Outflows: The second part of a cash flow statement. Amounts spent for food, clothing, transportation, and other living costs.

16-1 ASSESSMENT

1. Savings accounts and a home are examples of?

A. LiabilitiesB. AssetsC. Net worthD. Cash Outflow2. A payment for rent represents?E. A cash inflowF. A cash outflowG. A liabilityH. An asset