Calculate Financial Position
Principles of Cost Analysis and
Management
© Dale R. Geiger 2011
1
Why is it useful to know an entity’s
financial position?
© Dale R. Geiger 2011
2
Terminal Learning Objective
• Action: Calculate Financial Position
• Condition: You are a cost advisor technician with PCAM
course handouts, readings, and spreadsheet tools and
awareness of Operational Environment
(OE)/Contemporary Operational Environment (COE)
variables and actors.
• Standard: With at least 80% accuracy:
•
•
•
•
Define terminology used in basic accounting
Classify assets & liabilities
Assign value to assets
Enter relevant report data to solve Assets, Liabilities, and
Capital equation (using macros provided in Excel template)
• Solve for missing variables in the balance sheet equation
© Dale R. Geiger 2011
3
Meet the Simmons Family
• Gomer, Madge and kids:
• Bert, Lacy and baby Maddie
• Stunt doubles for a popular cartoon family
• Task: Calculate the family’s
Financial Position
© Dale R. Geiger 2011
4
What is Financial Position?
• Financial position is represented by the
equation:
Assets – Liabilities = Financial Position
Or
Assets = Liabilities + Financial Position
• Financial Position may also be called Equity or
Net Assets
© Dale R. Geiger 2011
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What’s an Asset?
• An Asset is:
• Something you OWN
• Represents FUTURE BENEFIT
• What kinds of assets might the Simmons
family own?
© Dale R. Geiger 2011
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What’s an Asset?
• An Asset is:
• Something you OWN
• Represents FUTURE BENEFIT
• What kinds of assets might the Simmons
family own?
© Dale R. Geiger 2011
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What’s an Asset?
• An Asset is:
• Something you OWN
• Represents FUTURE BENEFIT
• What kinds of assets might the Simmons
family own?
© Dale R. Geiger 2011
8
What’s an Asset?
• An Asset is:
• Something you OWN
• Represents FUTURE BENEFIT
• What kinds of assets might the Simmons
family own?
© Dale R. Geiger 2011
9
What’s a Liability?
• A Liability is:
• Something you OWE
• Represents FUTURE SACRIFICE
• A creditor’s CLAIM against your assets
• What kinds of Liabilities might the Simmons
family have?
© Dale R. Geiger 2011
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What’s a Liability?
• A Liability is:
• Something you OWE
• Represents FUTURE SACRIFICE
• A creditor’s CLAIM against your assets
• What kinds of Liabilities might the Simmons
family have?
© Dale R. Geiger 2011
11
What’s a Liability?
• A Liability is:
• Something you OWE
• Represents FUTURE SACRIFICE
• A creditor’s CLAIM against your assets
• What kinds of Liabilities might the Simmons
family have?
© Dale R. Geiger 2011
12
What’s a Liability?
• A Liability is:
• Something you OWE
• Represents FUTURE SACRIFICE
• A CREDITOR’S CLAIM against your assets
• What kinds of Liabilities might the Simmons
family have?
© Dale R. Geiger 2011
13
What’s a Liability?
• A Liability is:
• Something you OWE
• Represents FUTURE SACRIFICE
• A CREDITOR’S CLAIM against your assets
• What kinds of Liabilities might the Simmons
family have?
© Dale R. Geiger 2011
14
Check on Learning
• What is the equation to represent financial
position?
• Which element of the equation represents
future benefits of the entity?
© Dale R. Geiger 2011
15
Sorting the Data
• Madge’s stack of papers contains the following:
•
•
•
•
•
•
•
•
•
•
•
•
Deed to the house
$230,000
Mortgage note on house
225,000
Title to the car
6,000
Grocery receipts
400
Furniture receipts
3,000
Credit card statements
2,300
Property tax bill
2,500
The kids’ birth certificates
-0Hospital bill for Maddie
950
Clothing receipts
750
Bank Statement (reconciled balance)
305.47
Cash in Madge’s purse
20
• Task: Calculate the Simmons’ Net Worth
© Dale R. Geiger 2011
16
Sorting the Data
• Madge’s stack of papers contains the following:
•
•
•
•
•
•
•
•
•
•
•
•
Deed to the house
$230,000
Mortgage note on house
225,000
Title to the car
6,000
Grocery receipts
400
Furniture receipts
3,000
Credit card statements
2,300
Property tax bill
2,500
The kids’ birth certificates
-0Hospital bill for Maddie
950
Clothing receipts
750
Bank Statement (reconciled balance)
305.47
Cash in Madge’s purse
20
• Task: Calculate the Simmons’ Net Worth
© Dale R. Geiger 2011
17
Sorting the Data
• Madge’s stack of papers contains the following:
•
•
•
•
•
•
•
•
•
•
•
•
Deed to the house
$230,000
Mortgage note on house
225,000
Title to the car
6,000
Grocery receipts
400
Furniture receipts
3,000
Credit card statements
2,300
Property tax bill
2,500
The kids’ birth certificates
-0Hospital bill for Maddie
950
Clothing receipts
750
Bank Statement (reconciled balance)
305.47
Cash in Madge’s purse
20
• Task: Calculate the Simmons’ Net Worth
© Dale R. Geiger 2011
18
Classifying Assets & Liabilities
Assets:
House
$230,000
Car
6,000
Furniture
3,000
Clothing
750
Cash (Bank + purse) 327.47
Total
$240,077.47
Liabilities:
Mortgage
Credit Card
Property Tax
Hospital
Total
$225,000
2,300
2,500
950
$230,750
Financial Position or Net Worth =
$240,077.47 - $230,750 = $9,327.47
© Dale R. Geiger 2011
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Graphic Solution
© Dale R. Geiger 2011
20
Check on Learning
• Which of the following would be considered a
liability?
• Checking account $327
• Credit card account $246
• Groceries $50
• Assuming these are the only relevant items,
what is the financial position?
© Dale R. Geiger 2011
21
Reporting Financial Position
• The Statement of Financial Position presents
the financial position of a government entity
as of a SINGLE DATE.
• May also be called:
• Balance Sheet (for-profit entity)
• Statement of Net Assets (not-for-profit entity)
• Statement of Net Worth (individual or family)
© Dale R. Geiger 2011
22
Statement of Financial Position
Assets:
House
$230,000
Car
6,000
Furniture
3,000
Clothing
750
Cash (Bank + purse) 327.47
Total
$240,077.47
Liabilities:
Mortgage
Credit Card
Property Tax
Hospital
Total Liab.
Net Worth
Total
© Dale R. Geiger 2011
$225,000
2,300
2,500
950
$230,750
9,327.47
$240,077.47
23
Check on Learning
• What is the name of the report that presents a
government organization’s financial position?
An individual’s?
• What is the time frame of this report?
© Dale R. Geiger 2011
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Questions
• What about the groceries?
• Items that will be consumed during the current month
are considered Expenses
• What about the kids?
• First, would they be assets or liabilities? 
• Second, they aren’t “owned”
• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption:
• Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011
25
Questions
• What about the groceries?
• Items purchased and consumed during the current
period are considered Expenses
• What about the kids?
• First, would they be assets or liabilities? 
• Second, they aren’t “owned”
• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption:
• Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011
26
Questions
• What about the groceries?
• Items purchased and consumed during the current
period are considered Expenses
• What about the kids?
• First, would they be assets or liabilities? 
• Second, they aren’t “owned”
• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption:
• Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011
27
Questions
• What about the groceries?
• Items purchased and consumed during the current
period are considered Expenses
• What about the kids?
• First, would they be assets or liabilities? 
• Second, they aren’t “owned”
• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption:
• Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011
28
Questions
• What about the groceries?
• Items purchased and consumed during the current
period are considered Expenses
• What about the kids?
• First, would they be assets or liabilities? 
• Second, they aren’t “owned”
• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption:
• Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011
29
Questions
• What about the groceries?
• Items purchased and consumed during the current
period are considered Expenses
• What about the kids?
• First, would they be assets or liabilities? 
• Second, they aren’t “owned”
• Third, their value cannot be quantified monetarily
• Monetary Unit Assumption:
• Financial information must be measured and reported
in a monetary unit such as U.S. Dollars
© Dale R. Geiger 2011
30
Questions
• Isn’t the house worth more now than when they
bought it?
• Possibly, but it’s difficult to objectively determine its
value
• Cost Principle:
• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s
length transaction
• Is it necessary to report the 47₵ from the bank
account?
• Materiality Constraint:
• Report only the level of detail that will affect a user’s
decision
© Dale R. Geiger 2011
31
Questions
• Isn’t the house worth more now than when they
bought it?
• Possibly, but it’s difficult to objectively determine its
value
• Cost Principle:
• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s
length transaction
• Is it necessary to report the 47₵ from the bank
account?
• Materiality Constraint:
• Report only the level of detail that will affect a user’s
decision
© Dale R. Geiger 2011
32
Questions
• Isn’t the house worth more now than when they
bought it?
• Possibly, but it’s difficult to objectively determine its
value
• Cost Principle:
• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s
length transaction
• Is it necessary to report the 47₵ from the bank
account?
• Materiality Constraint:
• Report only the level of detail that will affect a user’s
decision
© Dale R. Geiger 2011
33
Questions
• Isn’t the house worth more now than when they
bought it?
• Possibly, but it’s difficult to objectively determine its
value
• Cost Principle:
• The most objective measure of an asset’s value is its
HISTORICAL COST: the price paid for it in an arm’s
length transaction
• Is it necessary to report the 47₵ from the bank
account?
• Materiality Constraint:
• Report only the level of detail that will affect a user’s
decision
© Dale R. Geiger 2011
34
Check on Learning
• What principle defines the value that should
be reported for an asset on the Statement of
Financial Position?
• What constraint prevents reporting
insignificant amounts that will not affect a
user’s decision?
© Dale R. Geiger 2011
35
Practical Exercise
© Dale R. Geiger 2011
36
Financial Position Spreadsheet
Enter data in the
white spaces
© Dale R. Geiger 2011
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Financial Position Spreadsheet
Use Tabs to Navigate
© Dale R. Geiger 2011
38
Financial Position Spreadsheet
The spreadsheet uses the
data you entered to produce
the Statement of Financial
Position and the pie graph
© Dale R. Geiger 2011
39
Practical Exercise
© Dale R. Geiger 2011
40