AllFinancialMatters

A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.

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Thursday, March 31, 2005

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.