Personal Financial Statements

Businesses prepare financial statements for the bosses to know the financial situation of their business and  help them in their decision making about the company. With that, do you think we can apply it to our personal life? Definitely YES!

Financial statements mainly consist of the Balance Sheet, Income Statement and Cash Flows Statement.

Balance Sheet (Financial Position)

The balance sheet is comprised of: Assets (business owns), Liabilities (debts) and Equity (Remaining Capital).

We should have a personal balance sheet so that we will know our net worth. Net worth (equity) is computed as Assets - Liabilities. How to do it? Make an inventory of everything you have from cash in bank, cash on hand, car, house, bank loan etc. Then summarize it so that you will have a snapshot.

Example:

Income Statement (Financial Performance)/Cash Flows

The income statement reports the performance of the company whether it's net profit or loss while the cash flows statement shows where the company gets their money (operating, investing or through financing activities).

In personal finance, we can apply this by doing budgeting where we will know our performance whether we need more money or not. You can check my blog about budgeting. 


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