Chapter 1
Financial Statements: Personal Accounting
11
ASSETS
LIABILITIES
CASH
UNPAID
ACCOUNTS
NET WORTH
+ $1,000
- 300
= $700
+ $1,000
- 300
= $700
FIGURE 1.18
ASSETS
LIABILITIES
CASH
UNPAID
ACCOUNTS
NET WORTH
+ $1,000
+ $300
+ $1,000
- 300
= $700
FIGURE 1.19
In general, keep in mind that the word “expense” relates to a decrease to net worth, which does not
necessarily relate to cash.
Cash Flow vs. Accruals
There are two key points to
understand.
1
Cash flow
relates to cash flowing
into and out of the bank account,which
is not necessarily directly connected to
net worth.
2
Accruals
relate to net worth, which
does not necessarily connect to cash
flow.
Both points are important and distinct.
1
1 2
2
&
Pay for the
expense now
Either way, net worth decreased by $500
Receive a bill
and pay later
ASSETS
PERSONAL BALANCE SHEET
LIABILITIES
CASH
PREPAID
EXPENSES
CONTENTS
OF HOME
AUTOMOBILE
HOUSE
UNPAID ACCOUNTS
MORTGAGE
LOANS
NETWORTH
- $500
+ $500
SURPLUS (DEFICIT)
EXPENSES
REVENUE
DEPRECIATION
FOOD
ENTERTAINMENT
INTEREST
MAINTENANCE
RENT
UTILITIES
INSURANCE
+ $500
PERSONAL INCOME STATEMENT
______________
FIGURE 1.20
