Personal Financial Statements

Question 0

What accounting basis is used to prepare personal financial statements?

Answer 0

Accrual basis and assets and liabilities are reported at their current fair value not the historic cost.

Question 1

What two personal financial statements are prepared or provided?

Answer 1

1- Statement of financial position or Balance Sheet ( Required)

2- Statement of changes in net worth (optional but provided often)

Question 2

How to compute net worth?

Answer 2

Beginning Balance at 1/1
+/- change in assets
+/- change in liabilities
Net worth at 12/31

Question 3

How are taxes estimated on personal financial statements ?

Answer 3

As if assets had been realized and liabilities had been liquidated.

Question 4

How are most assets valued for personal financial statements and what are they?

Answer 4

Using discounted cash flows of future payments.

Receivables
Retirement plan (vested only)
Income generating property
Intangible assets
Future interests/rights
Closely held business ( this could be valued with a number of other methods as well). 

Marketable securities are valued by taking market quotes.
Life insurance at its cash surrender value less any loan outstanding against it.
Real estate is valued by comparable sales or appraisal

Question 5

How should liabilities be reported on personal financial statements?

Answer 5

At lower of the PV or the current amount to settle.

Question 6

Is income earned during the year included in assembling the personal statement of financial position?

Answer 6

Nope!