Calculate Financial Position and Net Change in Financial Position © Dale R. Geiger 20111

Why is it useful to know an entitys financial position? © Dale R. Geiger 20112

Terminal Learning Objective Action: Calculate Financial Position and Change in Financial Position Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors Standard: With at least 80% accuracy: Classify assets & liabilities Classify revenues and expenses (cash basis) Enter relevant report data to solve Financial Position equation (using macros provided in Excel template) © Dale R. Geiger 20113

Meet the Simmons Family Gomer, Madge and kids: Bert, Lacy and baby Maddie Stunt doubles for a popular cartoon family Task: Calculate the familys Financial Position © Dale R. Geiger 20114

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 © Dale R. Geiger 20115

Whats an Asset? An Asset is: Something you OWN Represents FUTURE BENEFIT What kinds of assets might the Simmons family own? © Dale R. Geiger 20116

Whats an Asset? An Asset is: Something you OWN Represents FUTURE BENEFIT What kinds of assets might the Simmons family own? © Dale R. Geiger 20117

Whats an Asset? An Asset is: Something you OWN Represents FUTURE BENEFIT What kinds of assets might the Simmons family own? © Dale R. Geiger 20118

Whats an Asset? An Asset is: Something you OWN Represents FUTURE BENEFIT What kinds of assets might the Simmons family own? © Dale R. Geiger 20119

Whats a Liability? A Liability is: Something you OWE Represents FUTURE SACRIFICE A creditors CLAIM against your assets What kinds of Liabilities might the Simmons family have? © Dale R. Geiger

Whats a Liability? A Liability is: Something you OWE Represents FUTURE SACRIFICE A creditors CLAIM against your assets What kinds of Liabilities might the Simmons family have? © Dale R. Geiger

Whats a Liability? A Liability is: Something you OWE Represents FUTURE SACRIFICE A creditors CLAIM against your assets What kinds of Liabilities might the Simmons family have? © Dale R. Geiger

Whats a Liability? A Liability is: Something you OWE Represents FUTURE SACRIFICE A CREDITORS CLAIM against your assets What kinds of Liabilities might the Simmons family have? © Dale R. Geiger

Whats a Liability? A Liability is: Something you OWE Represents FUTURE SACRIFICE A CREDITORS CLAIM against your assets What kinds of Liabilities might the Simmons family have? © Dale R. Geiger

Learning Check What is the equation to represent financial position? Which element of the equation represents future benefits of the entity? © Dale R. Geiger

Sorting the Data Madges 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) Cash in Madges purse 20 Task: Calculate the Simmons Net Worth © Dale R. Geiger

Sorting the Data © Dale R. Geiger

Sorting the Data © Dale R. Geiger

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

Graphic Solution © Dale R. Geiger

Learning Check Which of the following would be considered a liability? Checking account $327 Credit card account $246 Groceries $50 Assuming these are the only relevant items, what is the financial position? © Dale R. Geiger

Reporting Financial Position The Statement of Financial Position presents the financial position of an 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) © Dale R. Geiger

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

Questions What about the groceries? Items that will be consumed during the current month are considered Expenses What about the kids? First, would they be assets or liabilities? Second, they arent owned Third, their value cannot be quantified monetarily Monetary Unit Assumption: Financial information must be measured and reported in a monetary unit such as U.S. Dollars © Dale R. Geiger

Questions What about the groceries? Items purchased and consumed during the current period are considered Expenses What about the kids? First, would they be assets or liabilities? Second, they arent owned Third, their value cannot be quantified monetarily Monetary Unit Assumption: Financial information must be measured and reported in a monetary unit such as U.S. Dollars © Dale R. Geiger

Questions What about the groceries? Items purchased and consumed during the current period are considered Expenses What about the kids? First, would they be assets or liabilities? Second, they arent owned Third, their value cannot be quantified monetarily Monetary Unit Assumption: Financial information must be measured and reported in a monetary unit such as U.S. Dollars © Dale R. Geiger

Questions What about the groceries? Items purchased and consumed during the current period are considered Expenses What about the kids? First, would they be assets or liabilities? Second, they arent owned Third, their value cannot be quantified monetarily Monetary Unit Assumption: Financial information must be measured and reported in a monetary unit such as U.S. Dollars © Dale R. Geiger

Questions What about the groceries? Items purchased and consumed during the current period are considered Expenses What about the kids? First, would they be assets or liabilities? Second, they arent owned Third, their value cannot be quantified monetarily Monetary Unit Assumption: Financial information must be measured and reported in a monetary unit such as U.S. Dollars © Dale R. Geiger

Questions What about the groceries? Items purchased and consumed during the current period are considered Expenses What about the kids? First, would they be assets or liabilities? Second, they arent owned Third, their value cannot be quantified monetarily Monetary Unit Assumption: Financial information must be measured and reported in a monetary unit such as U.S. Dollars © Dale R. Geiger

Questions Isnt the house worth more now than when they bought it? Possibly, but its difficult to objectively determine its value Cost Principle: The most objective measure of an assets value is its HISTORICAL COST: the price paid for it in an arms length transaction Is it necessary to report the 47 from the bank account? Materiality Constraint: Report only the level of detail that will affect a users decision © Dale R. Geiger

Questions Isnt the house worth more now than when they bought it? Possibly, but its difficult to objectively determine its value Cost Principle: The most objective measure of an assets value is its HISTORICAL COST: the price paid for it in an arms length transaction Is it necessary to report the 47 from the bank account? Materiality Constraint: Report only the level of detail that will affect a users decision © Dale R. Geiger

Questions Isnt the house worth more now than when they bought it? Possibly, but its difficult to objectively determine its value Cost Principle: The most objective measure of an assets value is its HISTORICAL COST: the price paid for it in an arms length transaction Is it necessary to report the 47 from the bank account? Materiality Constraint: Report only the level of detail that will affect a users decision © Dale R. Geiger

Questions Isnt the house worth more now than when they bought it? Possibly, but its difficult to objectively determine its value Cost Principle: The most objective measure of an assets value is its HISTORICAL COST: the price paid for it in an arms length transaction Is it necessary to report the 47 from the bank account? Materiality Constraint: Report only the level of detail that will affect a users decision © Dale R. Geiger

Learning Check What is the name of the report that presents a government organizations financial position? An individuals? What is the time frame of this report? What principle defines the value that should be reported for an asset on the Statement of Financial Position? © Dale R. Geiger

What if Gomer inherits $1,000,000? © Dale R. Geiger

Changes in Financial Position The Statement of Financial Position (Balance Sheet) reflects the Assets, Liabilities and Net Assets as of a SINGLE DATE. (Like a snapshot) Beginning Financial Position Ending Financial Position Statement of Activities © Dale R. Geiger

Changes in Financial Position The Statement of Activities, or Income Statement, reflects activity for a PERIOD OF TIME. (Like a video) Beginning Financial Position Ending Financial Position Statement of Activities © Dale R. Geiger

Changes in Financial Position Under the Cash Basis of Accounting: Revenues: Represent earnings received in cash Increase Assets and Increase Financial Position Costs: Represent cash payments for goods and services received Decrease Assets and Decrease Financial Position Revenues – Costs = Net Change in Financial Position © Dale R. Geiger

Changes in Financial Position Under the Cash Basis of Accounting: Revenues: Represent earnings received in cash Increase Assets and Increase Financial Position Costs: Represent cash payments for goods and services received Decrease Assets and Decrease Financial Position Revenues – Costs = Net Change in Financial Position © Dale R. Geiger

Changes in Financial Position Under the Cash Basis of Accounting: Revenues: Represent earnings received in cash Increase Assets and Increase Financial Position Costs: Represent cash payments for goods and services received Decrease Assets and Decrease Financial Position Revenues – Costs = Net Change in Financial Position © Dale R. Geiger

Changes in Financial Position Under the Cash Basis of Accounting: Revenues: Represent earnings received in cash Increase Assets and Increase Financial Position Costs: Represent cash payments for goods and services received Decrease Assets and Decrease Financial Position Revenues – Costs = Net Change in Financial Position © Dale R. Geiger

Learning Check What is the equation for the change in financial position? What is the name of the statement that describes changes in financial position? © Dale R. Geiger

The Simmons: Statement of Financial Position 1/1/11 Assets: House $230,000 Car 6,000 Furniture 3,000 Clothing 750 Cash 327 Total $240,077 Liabilities: Mortgage $225,000 Credit Card 2,300 Property Tax 2,500 Hospital 950 Total Liabilities $230,750 Net Assets: 9,327 Total $240,077 © Dale R. Geiger

The Simmons: Financial Activity for January DateActivityCash Amount 2-JanMadge puts gasoline in the car120 4-JanGomer buys doughnuts35 7-JanGomers paycheck (net of $75 tax)925 8-JanMadge buys groceries JanLacy has a dentist appointment JanBert breaks a window50 15-JanMadge babysits the neighbor kids25 21-JanGomers paycheck (net of $75 tax) JanMadge pays interest on mortgage938 Task: Calculate the Net Change in Financial Position for January. © Dale R. Geiger

The Simmons: Financial Activity for January DateActivityCash Amount 2-JanMadge puts gasoline in the car120 4-JanGomer buys doughnuts35 7-Jan 8-JanMadge buys groceries JanLacy has a dentist appointment JanBert breaks a window50 15-Jan 21-Jan 22-JanMadge pays interest on mortgage938 Task: Calculate the Net Change in Financial Position for January. © Dale R. Geiger

The Simmons: Financial Activity for January DateActivityCash Amount 2-Jan 4-Jan 7-Jan 8-Jan 12-Jan 14-Jan 15-Jan 21-Jan 22-Jan Task: Calculate the Net Change in Financial Position for January. © Dale R. Geiger

The Simmons: Changes in Financial Position What are the Revenues? Gomers gross pay and Madges babysitting What are the Costs? Tax withholding, gasoline, doughnuts, groceries, dentist, window, and mortgage interest What is the Net Change in Financial Position? Revenues $2,025 – Costs $1,993 = 2 Increase What is the Ending Financial Position? Beginning $9,327 + Increase $32 = Ending $9,359 © Dale R. Geiger

The Simmons: Changes in Financial Position What are the Revenues? Gomers gross pay and Madges babysitting $2025 What are the Costs? Tax withholding, gasoline, doughnuts, groceries, dentist, window, and mortgage interest What is the Net Change in Financial Position? Revenues $2,025 – Costs $1,993 = Increase What is the Ending Financial Position? Beginning $9,327 + Increase $32 = Ending $9,359 © Dale R. Geiger

The Simmons: Changes in Financial Position What are the Revenues? Gomers gross pay and Madges babysitting $2025 What are the Costs? Tax withholding, gasoline, doughnuts, groceries, dentist, window, and mortgage interest = $1933 What is the Net Change in Financial Position? Revenues $2,025 – Costs $1,993 = 32 Increase What is the Ending Financial Position? Beginning $9,327 + Increase $32 = Ending $9,359 © Dale R. Geiger

The Simmons: Changes in Financial Position What are the Revenues? Gomers gross pay and Madges babysitting $2025 What are the Costs? Tax withholding, gasoline, doughnuts, groceries, dentist, window, and mortgage interest = $1933 What is the Net Change in Financial Position? Revenues $2,025 – Costs $1,993 = $32 Increase What is the Ending Financial Position? Beginning $9,327 + Increase $32 = Ending $9,359 © Dale R. Geiger

The Simmons: Changes in Financial Position What are the Revenues? Gomers gross pay and Madges babysitting What are the Costs? Tax withholding, gasoline, doughnuts, groceries, dentist, window, and mortgage interest What is the Net Change in Financial Position? Revenues $2,025 – Costs $1,993 = $32 Increase What is the Ending Financial Position? Beginning $9,327 + Increase $32 = Ending $9,359 © Dale R. Geiger

The Simmons: Statement of Activities for month of January 2011 Revenues: Gomers Salary (Gross)$2,000 Madges babysitting 25 Total Revenues $2,025 Costs: Interest $938 Groceries 600 Tax Withholding 150 Gasoline 120 Dentist 100 Broken Window 50 Doughnuts 35 Total Costs 1,993 Net Change in Financial Position 32 Add: Financial Position January 1, ,327 Financial Position January 31, 2011 $9,359 © Dale R. Geiger

Graphic Representation of Net Change $32 $2025 $1993 © Dale R. Geiger

Graphic Representation of Net Change $32 $9359 $9327 © Dale R. Geiger

The Simmons: Statement of Financial Position 1/31/11 Assets: House $230,000 Car 6,000 Furniture 3,000 Clothing 750 Cash (327+32) 359 Total $240,109 Liabilities: Mortgage $225,000 Credit Card 2,300 Property Tax 2,500 Hospital 950 Total Liabilities $230,750 Net Assets: 9,359 Total $240,109 © Dale R. Geiger

Learning Check What activities will cause financial position to increase? What activities will cause financial position to decrease? © Dale R. Geiger

Financial Position Spreadsheet Enter data in the white spaces © Dale R. Geiger

Financial Position Spreadsheet Use Tabs to Navigate © Dale R. Geiger

Financial Position Spreadsheet The spreadsheet uses the data you entered to produce the Statement of Financial Position and the pie graph © Dale R. Geiger

Statement of Activities Spreadsheet Enter Transaction Data into the register © Dale R. Geiger

Statement of Activities Spreadsheet After entering Data, Press button to Create Statement Of Activities After entering Data, Press button to Create Statement Of Activities © Dale R. Geiger

Statement of Activities Spreadsheet Statement of Activities shows: Total Revenues, Total Costs, Change in Financial Position, and Ending Financial Position Statement of Activities shows: Total Revenues, Total Costs, Change in Financial Position, and Ending Financial Position © Dale R. Geiger

Practical Exercise © Dale R. Geiger