Net Worth Statement - Cash Flow Statement - Accounting Assessment Answer

Accounting Assessment Task

There are five parts for assignment 1:

1. Net Worth Statement:

Your net worth statement should have multiple entries for both assets and liabilities, showing categories for liquid assets, household/personal assets, investment assets, current liabilities, and long-term liabilities. Make sure you use examples from the textbook or other high-quality sources to establish the proper format for personal (not corporate) net worth. Personal net worth statements usually put assets first, and liabilities below, not side by side. Statements with minimal data, or unformatted presentation, will receive a grade of zero. Although you are submitting your work electronically, make sure your documents would print with a professional appearance on a single page. Check the print view to make sure of this.

What assets and liabilities might be realistic for a new graduate in this situation? There is a wide range of probable cases. Do not create an extreme situation.

2. Net Worth Analysis:

Write a paragraph to summarize your client’s net worth situation, and analyze it using the tools in Chapter 3, and your own knowledge and observations. Comment on liquidity, debt ratios, nature of assets and liabilities.

Include the important information about his net worth so that someone reading this will have a full understanding of his situation.

Make sure your comments are specific to this client, not general definitions, and make sure you explain the relevance of your observations to him.

Make sure to include the following items:

• How much is his net worth?
• How much are the total assets?
• What is the nature of his most important assets? Appreciating, depreciating, generating income, or generating expenses?
• How much are total liabilities?
• What is the nature of his largest liabilities? Do they represent investments for future, or consumer spending? Are they growing or declining?
• What is his debt to asset ratio? What does this mean, and what are the implications for the client?
• What is his liquidity ratio? What does this mean, and what are the implications for the client?
• What is his current ratio? What does this mean, and what are the implication for the client?

Do not repeat all the details of the statement in your commentary. This should be words describing the overall situation in general. Make sure your comments convey a solid understanding of his net worth position.

Be professional and objective, but make sure an ordinary person could understand the general situation.

Avoid judgmental terms like “good”, “bad”, or other unsupported comments. Stick to facts and implications.

After you know the client’s current situation and goals (assignment 2), you can make suggestions (assignment 3).

3. Cash Flow Statement (Budget):

Your cash flow statement should be detailed and cover all categories of spending. Your client must be living independently, covering all his own expenses, either alone, or with one roommate. Assume that your client is spending all his income, and is not yet saving money. In other words, there is no shortfall, and there is no surplus. This will make future assignments easier to do.

This cash flow statement is the expected spending in all categories for the upcoming 12 months. Think about how he lives and spends money. Based on his past practice and expectations for the upcoming year, create a cash flow/budget document. Some expenses do not occur every day, week, or month. Nevertheless, you will show an average monthly and annual amount for each expense. 

Make sure you group the spending into logical categories (for example, housing, food, transportation, technology, entertainment, etc). Within each category, show all the details. 100% of income must be shown in expenses (no surplus). Do not use a miscellaneous category. It’s important to be thinking of all the expenses that people incur in their lives. You are developing an understanding of how people spend their money.

You must include four columns: item description, average monthly amount, annual amount, and % of total.

4. Cash Flow Analysis:

Write a paragraph that gives a clear impression of his cash flow situation. Demonstrate insight into the implications of his current situation for the future.

Make sure to include the following items:

• How much is the total income?
• How much are the total expenses?
• Is the client spending all their income?
• How much of the average monthly spending is fixed expenses that are difficult to change?
• How much of the average monthly spending is discretionary lifestyle expenses that are more flexible in the short run?
• Which categories represent the largest share of the total? Of course, housing is the largest category for most! You are looking for something that describes your client uniquely. Based on your observations of his cash flow, what are his priorities?

Be professional and objective, but make sure an ordinary person could understand the general situation.

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