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CHAPTER 2 : PERSONAL FINANCE RECORD KEEPING (BALANCE SHEET (Assets…
CHAPTER 2 : PERSONAL FINANCE RECORD KEEPING
Personal finance record keeping is also known as
personal financial statements
and
cash budget**.
PERSONAL FINANCIAL STATEMENTS
= BALANCE SHEET AND CF STATEMENT
BALANCE SHEET
Assets
Lifestyle Assets
that help achieve a desired quality of life.
residence
automobile
jewelry
textbooks
antiques
coins collection
Investment Assets
that are being purchased to obtain extra or side income.
bonds
unit trusts
shares
cooperative investments
Liquid Assets
Can be converted into cash immediately with a minimum amount of inconvenience and these assets have a stable MV.
Cash
Savings Account
Checking/Current Account
Liabiilities
CURRENT LIABILITIES
debts that have maturity up to one year. example is utility bills also known as bills for direct purchase and credit cards, payment for loan installments, payments for a personal loan or a computer loan that are due within 1 year.
NON-CURRENT LIABILITIES
debts with a maturity of more than 1 year. two groups:-
Non-current portion of loans with specific repayment schedules. Eg:-
Installment loans on cars
Equipments
Houses
Other properties
Non-current portion of liabilities without specific repayment schedules.
Networth
A difference between assets and liabilities.
CASH FLOW STATEMENT
It will indicate a person's financial position.
It helps in designing a person's budget.
FINANCIAL RATIOS
Level of Debt
Debt ratio = Total Liabilities / Total Assets
Debt service coverage ratio = Take-home pay / Debt service charges
Assets Liquidity
Liquid Assets to take-home pay ratio = Liquid Assets / Take-home pay
Current ratio = Liquid Assets / Current Liabilities