Net Worth Statement - Part II

Yesterday, I began a new series called "Financial Planning Basics" and started with a post about the net worth statement. Today, I'll take the net worth statement a little further and show some various transactions and their effect on the net worth statement. While studying these examples, keep in mind the net worth equation:

Assets = Liabilities + Net Worth

Example One

Withdraw $5,000 from your savings account to pay for a vacation:

Assets = Liabilities + Net Worth

-$5,000 = No Change + -$5,000

Example Two

Withdraw $2,000 from savings to purchase a $2,000 personal computer:

To reflect the withdrawal from savings:

-$2,000 = No Change + No Change

To reflect the purchase of the computer (considered an asset):

+$2,000 = No Change + No Change

Example Three

Withdraw $5,000 from savings and charge $2,000 to your credit card to pay for a new dining room suite:

To reflect the withdrawal from savings and the additional liability on your credit card:

-$5,000 = +$2,000 + No Change

To reflect the addition of the dining room suite to asset-side of the equation:

+$7,000 = No Change + No Change

Those are a few examples to study. With my next post, we'll dive a little deeper into net worth statements.