Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life. A balance sheet is a snapshot of a business financial condition at a specific moment in time, usually at the close of an accounting period. A balance sheet is comprised of assets, liabilities, and owners’ or stockholders’ equity. Assets and liabilities are divided into short- and long-term obligations including cash accounts such as checking, money market, or government securities. A balance sheet can be applied to everyday life through an interesting look called your lifetime balance sheet. Equity is computed by subtracting the value of your liabilities from the total of your personal assets. The summary is as follows: Assets
Financial Assets – houses, automobiles, bank accounts, investments, retirement accounts, businesses owned, along with personal items of value, including clothing, furniture, art, antiques, and any items worth noting.
Human Capital -- the ability to work and earn income. Liabilities
Pre-Retirement Consumption Spending -- a mortgage, loan, education and credit card balances as of the date on the balance sheet. Retirement Spending -- what you'll need to live on.
Given these list of assets and liability, the process over a lifetime goes as follows:
You have little, if any, financial assets when you start working. You begin to work and earn an income. Much of this income goes to pre-retirement consumption spending; the rest is saved as financial assets. As time goes on, your income grows and your pre-retirement consumption spending is kept as low as possible. You are able to save more in your financial assets as well as build up Social Security benefits. When you retire, you simply have financial assets and one liability, retirement spending. The hope is