Calculate Financial Position Principles of Cost Analysis and Management

Why is it useful to know an entity’s financial position?

Terminal Learning Objective Action: Calculate Financial Position Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for international students) you must: Define / Explain Financial Position Demonstration problem – Classify Assets and Liabilities Reporting Financial Position

Meet the Simmons Family Gomer, Madge and kids: Bert, Lacy and baby Maddie Stunt doubles for a popular cartoon family Task: Calculate the family’s Financial Position

What is Financial Position? Financial position is represented by the equation: Assets – Liabilities = Financial Position Or Assets = Liabilities + Financial Position Financial Position may also be called Equity or Net Assets

What’s an Asset? An Asset is: What kinds of assets might the Simmons Something you OWN Represents FUTURE BENEFIT What kinds of assets might the Simmons What kinds of assets might the Simmons family own? ilywn OWN FUTURE BENEFIT

What’s a Liability? A Liability is: Something you OWE Represents FUTURE SACRIFICE A creditor’s CLAIM ______against your assets What kinds of Liabilities might the Simmons family have? OWE FUTURE SACRIFICE CREDITOR’S CLAIM What kinds of Liabilities might the Simmons family have?

LSA #1 Check on Learning Q1. What is the equation to represent financial position? A1. Q2. Which element of the equation represents future benefits of the entity? A2. Q1. What is the equation to represent financial position? A1. Assets – Liabilities = Financial Position Or Assets = Liabilities + Financial Position Q2. Which element of the equation represents future benefits of the entity? A2. Assets

LSA #1 Summary For this learning step, we spoke of the Simmons Family Budget and covered some basic acronyms such as assets and liabilities.

Sorting the Data Madge’s stack of papers contains the following: Deed to the house $230,000 Mortgage note on house 225,000 Title to the car 6,000 Grocery receipts 400 Furniture receipts 3,000 Credit card statements 2,300 Property tax bill 2,500 The kids’ birth certificates -0- Hospital bill for Maddie 950 Clothing receipts 750 Bank Statement (reconciled balance) 307.47 Cash in Madge’s purse 20 Task: Calculate the Simmons’ Net Worth

Sorting the Data (Cont.) Madge’s stack of papers contains the following: Deed to the house $230,000 Mortgage note on house 225,000 Title to the car 6,000 Grocery receipts 400 Furniture receipts 3,000 Credit card statements 2,300 Property tax bill 2,500 The kids’ birth certificates -0- Hospital bill for Maddie 950 Clothing receipts 750 Bank Statement (reconciled balance) 307.47 Cash in Madge’s purse 20 Task: Calculate the Simmons’ Net Worth

Sorting the Data (Cont.) Madge’s stack of papers contains the following: Deed to the house $230,000 Mortgage note on house 225,000 Title to the car 6,000 Grocery receipts 400 Furniture receipts 3,000 Credit card statements 2,300 Property tax bill 2,500 The kids’ birth certificates -0- Hospital bill for Maddie 950 Clothing receipts 750 Bank Statement (reconciled balance) 307.47 Cash in Madge’s purse 20 Task: Calculate the Simmons’ Net Worth

Classifying Assets & Liabilities Assets: House $230,000 Car 6,000 Furniture 3,000 Clothing 750 Cash (Bank + purse) 327.47 Total $240,077.47 Liabilities: Mortgage $225,000 Credit Card 2,300 Property Tax 2,500 Hospital 950 Total $230,750 Financial Position or Net Worth = $240,077.47 - $230,750 = $9,327.47

Graphic Solution

LSA #2 Check on Learning Q1. Which of the following would be considered a liability: Checking account $327; Credit card account $246; Groceries $50 A1. Q2. Assuming these are the only relevant items, what is the financial position? A2. Q1. Which of the following would be considered a liability: Checking account $327; Credit card account $246; Groceries $50 A1. The Credit Card account is the liability Q2. Assuming these are the only relevant items, what is the financial position? A2. Checking account 327 – credit card account 246 = financial position $81

LSA #2 Summary In this activity, we discussed the classification of assets and liabilities, used several examples with formula(s) and a graphic representation.

Reporting Financial Position The Statement of Financial Position presents the financial position of a government entity as of a SINGLE DATE. May also be called: Balance Sheet (for-profit entity) Statement of Net Assets (not-for-profit entity) Statement of Net Worth (individual or family)

Statement of Financial Position Assets: House $230,000 Car 6,000 Furniture 3,000 Clothing 750 Cash (Bank + purse) 327.47 Total $240,077.47 Liabilities: Mortgage $225,000 Credit Card 2,300 Property Tax 2,500 Hospital 950 Total Liab. $230,750 Net Worth 9,327.47 Total $240,077.47

LSA #3 Check on Learning Q1. What is the name of the report that presents a government organization’s financial position? An individual’s? A1. Q2. What is the time frame of this report? A2. Q1. What is the name of the report that presents a government organization’s financial position? An individual’s? A1. Statement of Net Assets / Statement of Net Worth Q2. What is the time frame of this report? A2. A single day

LSA #3 Summary During this block, we discussed that the Statement of Financial Position has different names depending on the entity.

Practical Exercise

Financial Position Spreadsheet Enter data in the white spaces

Financial Position Spreadsheet (Cont.) Use Tabs to Navigate

Financial Position Spreadsheet (Cont.) The spreadsheet uses the data you entered to produce the Statement of Financial Position and the pie graph

Practical Exercise

TLO Summary Action: Calculate Financial Position Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for international students) you must: Define / Explain Financial Position Demonstration problem – Classify Assets and Liabilities Reporting Financial Position