What Are Personal Financial Statements?
Personal financial statements are accounting statements used to reflect changes in the financial status of individuals or families and changes in wealth. There are mainly two types of statements: financial position statement and net wealth change statement. It is mainly used for personal or family financial planning, such as obtaining installment purchase discounts, paying personal income tax, applying for credit school, preparing retirement plans and gift plans, and publicizing personal financial information. In some countries, government officials and those who are about to become government officials are obliged to prepare their personal financial statements on a regular basis in order to demonstrate their integrity and integrity.
Personal financial statements
- It reflects the assets, liabilities and net wealth of an individual or family on a specific date. It is an individual's main financial statement. Unlike a company's balance sheet, the third element of this table is not owner's equity, but net wealth, and is represented by a total amount.
- In the statement of financial position, assets are arranged according to liquidity, and the stronger the liquidity, the higher the ranking, but assets do not need to be divided into several categories like enterprises. Assets, liabilities and their changes shall be recognized in accordance with the accrual system in the same way as enterprises. Assets and liabilities can be valued at the original cost, but the fair value at the balance sheet date can better reflect the financial status of the individual or family. When assets are valued at fair value, an "income tax on unrealized asset appreciation" will also be generated. It is said that when an asset is sold at fair value, the individual or family should pay income tax in accordance with the provisions of the income tax law. It is expected that the income tax of unrealized asset appreciation can make the statement of financial position reflect the actual net equity of the individual or family, which is the total assets minus The difference after deducting liabilities and unrealized asset appreciation income tax.
- Statement of Changes in Net Wealth
- Statements that reflect changes in the net wealth of individuals or households over a period of time. It uses an individual's or family's income increase and expenditure in a period to explain changes in their net wealth, so it can link income, expenditure and net wealth, and can be used as a schedule in the statement of financial position.
- Net wealth at the end of the period
- Changes in net wealth include realized net wealth increase, realized net wealth decrease (both result in realized net wealth increase and decrease), unrealized net wealth increase, and unrealized net wealth decrease (both result in unrealized Net wealth increase and decrease) four parts. The net wealth increase and decrease (including realized and unrealized) plus the net wealth at the beginning of the period is the net wealth at the end of the period. This number should be consistent with the net wealth in the current statement of financial position.
- In layman's terms, personal assets are what individuals have. Most assets are tangible, such as cars, houses, etc. Of course, in some cases, they are also intangible, such as copyrights, invention patents, etc. The classification of an item as an asset is not based on whether or not it is obtained through purchase. The key depends on whether it belongs to this person. Even if one thing has not been paid in full, as long as it already belongs to that person, it should be included in the balance sheet, such as a car and a house bought on loan.
- Personal assets can be divided into the following categories: (1) Current assets. Current assets include cash and property (such as demand deposits) that can be turned into cash easily and without loss. Current assets are used for daily living expenses, purchasing goods, paying bills and interest on loans. (2) Investment. An investment is an asset used to get a return. Among these assets, financial investment is often the main part, which includes company stocks, government bonds, corporate bonds, long-term deposits, funds, insurance, pension plans, trust plans, and so on. In addition, it also includes some non-financial investment assets, such as stamps, art, and real estate. The liquidity of different investments (that is, the degree of difficulty in realizing) is quite different. Generally speaking, the financial assets have higher liquidity than non-financial assets. (3) High-priced physical property and other personal belongings. High-priced real property is used by individuals in their lives, and the price is relatively high. Items that occupy a large proportion of personal assets include housing, cars, high-end furniture, and high-end jewelry. Other personal belongings include clothing, household appliances, and electronics. With the exception of housing, other personal belongings tend to have a greatly reduced market value after they are put into use.
- Personal liabilities need to be repaid at a certain period in the future, and the main forms include credit card payables, car loans, home mortgages, etc. According to the length of maturity, personal liabilities are divided into short-term liabilities and long-term liabilities. Short-term liabilities are debts due within one year, and long-term liabilities are debts with a maturity date of more than one year. Table 4-7 shows the personal liability items that appear on the personal balance sheet.
- Personal net worth refers to the wealth that an individual actually owns. It is equal to personal assets minus personal liabilities. If the net worth of an individual is less than zero, it means that the individual or family is insolvent. Generally speaking, personal net worth will gradually increase as people age. For example, during the student period, their personal net worth will be small, mainly the living expenses provided by their parents. After working for several years, there will be some savings and personal net assets will be greatly improved. After getting married and having children, you may have bought a house and a car, bank deposits have been further improved, and personal net worth will rise to another level. When conducting long-term financial planning, personal net assets are very important data. If it is determined to accumulate wealth as a goal of financial management, then tracking personal net worth data is a good analysis method.
- The following table shows a simulated personal balance sheet. Assets are listed on the left and liabilities and net assets are listed on the right. This format is similar to a company's balance sheet. Under the various subjects of assets and liabilities, some more sub-items have been allocated. However, regardless of the classification of assets and liabilities, the totals on the left and right sides of the table are equal or balanced. It should be noted that the detailed items in each subject of the personal balance sheet are quite different due to different accounting entities, which should be decided according to different situations.
- In determining the value of each asset, it is very different from the corporate balance sheet. When compiling an enterprise's balance sheet, the asset value should be calculated based on the historical cost principle and the price at the time of asset purchase. When preparing a personal balance sheet, it should be calculated based on the market value of the assets at the time of preparation. For example, a car purchased five years ago for 200,000 yuan has a current market price of 60,000 for second-hand cars. When compiling a company's balance sheet, its asset value must be calculated at 200,000 yuan. When compiling a personal balance sheet, it should be priced at 60,000. Except for the possible appreciation of assets such as real estate and art, most assets will decrease in value over time.
- Personal financial statements
- 2009-12-14 10:49
|
- Many books on financial management emphasize the importance of personal financial statements, the most classic of which is the "Father Dad Poor Dad" series. You can consciously collect relevant information and try to do it. Let me talk about my personal experience:
- Personal financial statements do not necessarily require deep knowledge of accounting, it is important to persist. Find a free time to collect statistics on all your belongings, account deposits, and cash. You must also add the debt you borrowed and the debt you borrowed. Of course, you must pay attention to the positive and negative. This step may be a bit tedious, but Can help you understand how much property you really own. Note that property is not equal to assets. One of the concepts I agree with is that "assets increase your income (the cash flow brought is positive), and debts consume your money (the cash flow brought is negative)." Then record all expenses and income of the day in detail every day. Be sure to clearly remember the purpose of spending and the source of income, and make appropriate classifications, such as "diet", "leisure", "social", "daily use" And "salary", "part-time", "investment", "shares", etc.
- Collect and collect all personal belongings, account deposits, and cash. Loans and borrowed debt must be added. Note that assets are not equal to assets. "Assets are used to increase income (the cash flow brought is positive). Liabilities Will consume (negative cash flow). Record all expenses and income of the day in detail every day, remember the way spent and the source of income, and make appropriate classification, such as diet, leisure, Social, daily use and part-time, wages, investments, shares, etc. The funds used in each category are summarized monthly, and the total cash flow can be understood, and the amount of property actually held and its changes can be clearly understood. If you can It is more convenient to check and count on the computer, and then design the form, which can be used if necessary.
- The benefit of financial statements is that you can have a clear concept of your own capital expenditure, know which directions to reduce and open source, you can make more reasonable financial planning, and enhance financial awareness.