Calculate Financial Position Calculate Financial Position

© Dale R. Geiger 2011 1

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

© Dale R. Geiger 2011 2

Terminal Learning ObjectiveTerminal 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 2011 3

Meet the Simmons FamilyMeet 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 2011 4

What is 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

© Dale R. Geiger 2011 5

What’s an Asset?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 2011 6

What’s an Asset?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 2011 7

What’s an Asset?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 2011 8

What’s an Asset?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 2011 9

What’s a Liability?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 2011 10

What’s a Liability?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 2011 11

What’s a Liability?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 2011 12

What’s a Liability?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 2011 13

What’s a Liability?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 2011 14

Check on LearningCheck on Learning

• What is the equation to represent financial position?

• Which element of the equation represents future benefits of the entity?

© Dale R. Geiger 2011 15

Sorting the Data 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

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Sorting the Data Sorting the Data

© Dale R. Geiger 201117

Sorting the Data Sorting the Data

© Dale R. Geiger 201118

Classifying Assets & LiabilitiesClassifying Assets & Liabilities

Assets:House $230,000Car 6,000Furniture 3,000Clothing 750Cash (Bank + purse) 327.47

Total $240,077.47

Liabilities:Mortgage $225,000Credit Card 2,300Property Tax 2,500Hospital 950Total $230,750

Financial Position or Net Worth = $240,077.47 - $230,750 = $9,327.47

© Dale R. Geiger 2011 19

Graphic SolutionGraphic Solution

© Dale R. Geiger 2011 20

Check on LearningCheck 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 2011 21

Reporting Financial PositionReporting 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 2011 22

Statement of Financial PositionStatement of Financial Position

Assets:House $230,000Car 6,000Furniture 3,000Clothing 750Cash (Bank + purse) 327.47

Total $240,077.47

Liabilities:Mortgage $225,000Credit Card 2,300Property Tax 2,500Hospital 950Total Liab. $230,750Net Worth 9,327.47

Total $240,077.47

© Dale R. Geiger 2011 23

Check on LearningCheck 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 2011 24

QuestionsQuestions

• 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 2011 25

QuestionsQuestions

• 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 2011 26

QuestionsQuestions

• 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 2011 27

QuestionsQuestions

• 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 2011 28

QuestionsQuestions

• 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 2011 29

QuestionsQuestions

• 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 2011 30

QuestionsQuestions• 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 2011 31

QuestionsQuestions• 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 2011 32

QuestionsQuestions• 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 2011 33

QuestionsQuestions• 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 2011 34

Check on LearningCheck 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 2011 35

Practical ExercisePractical Exercise

© Dale R. Geiger 2011 36

Financial Position SpreadsheetFinancial Position SpreadsheetEnter data in the white spaces

© Dale R. Geiger 2011 37

Financial Position SpreadsheetFinancial Position Spreadsheet

Use Tabs to Navigate

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Financial Position SpreadsheetFinancial Position Spreadsheet

The spreadsheet uses the data you entered to produce the Statement of Financial Position and the pie graph

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Practical ExercisePractical Exercise

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