1. Calculate Financial Position © Dale R. Geiger 20111

2. Why is it useful to know an entity’s financial position? © Dale R. Geiger 20112

3. Terminal Learning Objective Action: Calculate Financial Position Condition: You are a cost advisor technician with PCAM 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: Define terminology used in basic accounting Classify assets & liabilities Assign value to assets Enter relevant report data to solve Assets, Liabilities, and Capital equation (using macros provided in Excel template) Solve for missing variables in the balance sheet equation © Dale R. Geiger 20113

4. 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 © Dale R. Geiger 20114

5. 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

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

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

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

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

10. 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? © Dale R. Geiger 201110

11. 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? © Dale R. Geiger 201111

12. 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? © Dale R. Geiger 201112

13. 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? © Dale R. Geiger 201113

14. 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? © Dale R. Geiger 201114

15. Check on Learning What is the equation to represent financial position? Which element of the equation represents future benefits of the entity? © Dale R. Geiger 201115

16. 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) 305.47 Cash in Madge’s purse 20 Task: Calculate the Simmons’ Net Worth © Dale R. Geiger 2011 16

17. Sorting the Data © Dale R. Geiger 2011 17

18. Sorting the Data © Dale R. Geiger 2011 18

19. 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 © Dale R. Geiger 201119

20. Graphic Solution © Dale R. Geiger 201120

21. Check on Learning 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 201121

22. 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) © Dale R. Geiger 201122

23. 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 © Dale R. Geiger 201123

24. Check on Learning What is the name of the report that presents a government organization’s financial position? An individual’s? What is the time frame of this report? © Dale R. Geiger 201124

25. 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 aren’t “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 201125

26. 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 aren’t “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 201126

27. 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 aren’t “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 201127

28. 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 aren’t “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 201128

29. 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 aren’t “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 201129

30. 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 aren’t “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 201130

31. Questions Isn’t the house worth more now than when they bought it? Possibly, but it’s difficult to objectively determine its value Cost Principle: The most objective measure of an asset’s value is its HISTORICAL COST: the price paid for it in an arm’s 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 user’s decision © Dale R. Geiger 201131

32. Questions Isn’t the house worth more now than when they bought it? Possibly, but it’s difficult to objectively determine its value Cost Principle: The most objective measure of an asset’s value is its HISTORICAL COST: the price paid for it in an arm’s 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 user’s decision © Dale R. Geiger 201132

33. Questions Isn’t the house worth more now than when they bought it? Possibly, but it’s difficult to objectively determine its value Cost Principle: The most objective measure of an asset’s value is its HISTORICAL COST: the price paid for it in an arm’s 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 user’s decision © Dale R. Geiger 201133

34. Questions Isn’t the house worth more now than when they bought it? Possibly, but it’s difficult to objectively determine its value Cost Principle: The most objective measure of an asset’s value is its HISTORICAL COST: the price paid for it in an arm’s 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 user’s decision © Dale R. Geiger 201134

35. Check on Learning What principle defines the value that should be reported for an asset on the Statement of Financial Position? What constraint prevents reporting insignificant amounts that will not affect a user’s decision? © Dale R. Geiger 201135

36. Practical Exercise © Dale R. Geiger 201136

37. Financial Position Spreadsheet Enter data in the white spaces © Dale R. Geiger 201137

38. Financial Position Spreadsheet Use Tabs to Navigate © Dale R. Geiger 201138

39. Financial Position Spreadsheet The spreadsheet uses the data you entered to produce the Statement of Financial Position and the pie graph © Dale R. Geiger 201139

40. Practical Exercise © Dale R. Geiger 201140