Calculate Financial Position and
Net Change in Financial Position
Intermediate 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 and Change in
Financial Position
• Condition: You are training to become an ACE with
access to ICAM 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:
• Classify assets & liabilities
• Classify revenues and expenses (cash basis)
• Enter relevant report data to solve Financial Position
equation (using macros provided in Excel template)
© 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
5
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
6
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
7
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
10
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
Learning Check
• 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
19
Graphic Solution
© Dale R. Geiger 2011
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Learning Check
• 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 an 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
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
24
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
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
• 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
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
Learning Check
• 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?
• What principle defines the value that should
be reported for an asset on the Statement of
Financial Position?
© Dale R. Geiger 2011
34
What if Gomer inherits $1,000,000?
© Dale R. Geiger 2011
35
Changes in Financial Position
• The Statement of Financial Position (Balance
Sheet) reflects the Assets, Liabilities and Net
Assets as of a SINGLE DATE. (Like a snapshot)
Beginning
Financial
Position
Statement of Activities
© Dale R. Geiger 2011
Ending
Financial
Position
36
Changes in Financial Position
• The Statement of Activities, or Income
Statement, reflects activity for a PERIOD OF
TIME. (Like a video)
Beginning
Financial
Position
Statement of Activities
© Dale R. Geiger 2011
Ending
Financial
Position
37
Changes in Financial Position
• Under the Cash Basis of Accounting:
• Revenues:
• Represent earnings received in cash
• Increase Assets and Increase Financial Position
• Costs:
• Represent cash payments for goods and services
received
• Decrease Assets and Decrease Financial Position
Revenues – Costs =
Net Change in Financial Position
© Dale R. Geiger 2011
38
Changes in Financial Position
• Under the Cash Basis of Accounting:
• Revenues:
• Represent earnings received in cash
• Increase Assets and Increase Financial Position
• Costs:
• Represent cash payments for goods and services
received
• Decrease Assets and Decrease Financial Position
Revenues – Costs =
Net Change in Financial Position
© Dale R. Geiger 2011
39
Changes in Financial Position
• Under the Cash Basis of Accounting:
• Revenues:
• Represent earnings received in cash
• Increase Assets and Increase Financial Position
• Costs:
• Represent cash payments for goods and services
received
• Decrease Assets and Decrease Financial Position
Revenues – Costs =
Net Change in Financial Position
© Dale R. Geiger 2011
40
Changes in Financial Position
• Under the Cash Basis of Accounting:
• Revenues:
• Represent earnings received in cash
• Increase Assets and Increase Financial Position
• Costs:
• Represent cash payments for goods and services
received
• Decrease Assets and Decrease Financial Position
Revenues – Costs =
Net Change in Financial Position
© Dale R. Geiger 2011
41
Learning Check
• What is the equation for the change in
financial position?
• What is the name of the statement that
describes changes in financial position?
© Dale R. Geiger 2011
42
The Simmons:
Statement of Financial Position
1/1/11
Assets:
House
Car
Furniture
Clothing
Cash
$230,000
6,000
3,000
750
327
Total
$240,077
Liabilities:
Mortgage
$225,000
Credit Card
2,300
Property Tax
2,500
Hospital
950
Total Liabilities $230,750
Net Assets:
9,327
Total
$240,077
© Dale R. Geiger 2011
43
The Simmons:
Financial Activity for January
Date
Activity
Cash Amount
2-Jan
Madge puts gasoline in the car
4-Jan
Gomer buys doughnuts
7-Jan
Gomer’s paycheck (net of $75 tax)
925
8-Jan
Madge buys groceries
600
12-Jan
Lacy has a dentist appointment
100
14-Jan
Bert breaks a window
50
15-Jan
Madge babysits the neighbor kids
25
21-Jan
Gomer’s paycheck (net of $75 tax)
925
22-Jan
Madge pays interest on mortgage
938
120
35
Task: Calculate the Net Change in Financial Position for January.
© Dale R. Geiger 2011
44
The Simmons:
Financial Activity for January
Date
Activity
Cash Amount
2-Jan
Madge puts gasoline in the car
4-Jan
Gomer buys doughnuts
7-Jan
Gomer’s paycheck (net of $75 tax)
925
8-Jan
Madge buys groceries
600
12-Jan
Lacy has a dentist appointment
100
14-Jan
Bert breaks a window
50
15-Jan
Madge babysits the neighbor kids
25
21-Jan
Gomer’s paycheck (net of $75 tax)
925
22-Jan
Madge pays interest on mortgage
938
120
35
Task: Calculate the Net Change in Financial Position for January.
© Dale R. Geiger 2011
45
The Simmons:
Financial Activity for January
Date
Activity
Cash Amount
2-Jan
Madge puts gasoline in the car
4-Jan
Gomer buys doughnuts
7-Jan
Gomer’s paycheck (net of $75 tax)
925
8-Jan
Madge buys groceries
600
12-Jan
Lacy has a dentist appointment
100
14-Jan
Bert breaks a window
50
15-Jan
Madge babysits the neighbor kids
25
21-Jan
Gomer’s paycheck (net of $75 tax)
925
22-Jan
Madge pays interest on mortgage
938
120
35
Task: Calculate the Net Change in Financial Position for January.
© Dale R. Geiger 2011
46
The Simmons:
Changes in Financial Position
• What are the Revenues?
• Gomer’s gross pay and Madge’s babysitting
• What are the Costs?
• Tax withholding , gasoline, doughnuts, groceries,
dentist, window, and mortgage interest
• What is the Net Change in Financial Position?
• Revenues $2,025 – Costs $1,993 =
2 Increase
• What is the Ending Financial Position?
• Beginning $9,327 + Increase $32 = Ending $9,359
© Dale R. Geiger 2011
47
The Simmons:
Changes in Financial Position
• What are the Revenues?
• Gomer’s gross pay and Madge’s babysitting $2025
• What are the Costs?
• Tax withholding , gasoline, doughnuts, groceries,
dentist, window, and mortgage interest
• What is the Net Change in Financial Position?
• Revenues $2,025 – Costs $1,993 =
Increase
• What is the Ending Financial Position?
• Beginning $9,327 + Increase $32 = Ending $9,359
© Dale R. Geiger 2011
48
The Simmons:
Changes in Financial Position
• What are the Revenues?
• Gomer’s gross pay and Madge’s babysitting $2025
• What are the Costs?
• Tax withholding, gasoline, doughnuts, groceries,
dentist, window, and mortgage interest = $1933
• What is the Net Change in Financial Position?
• Revenues $2,025 – Costs $1,993 =
32 Increase
• What is the Ending Financial Position?
• Beginning $9,327 + Increase $32 = Ending $9,359
© Dale R. Geiger 2011
49
The Simmons:
Changes in Financial Position
• What are the Revenues?
• Gomer’s gross pay and Madge’s babysitting $2025
• What are the Costs?
• Tax withholding, gasoline, doughnuts, groceries,
dentist, window, and mortgage interest = $1933
• What is the Net Change in Financial Position?
• Revenues $2,025 – Costs $1,993 = $32 Increase
• What is the Ending Financial Position?
• Beginning $9,327 + Increase $32 = Ending $9,359
© Dale R. Geiger 2011
50
The Simmons:
Changes in Financial Position
• What are the Revenues?
• Gomer’s gross pay and Madge’s babysitting
• What are the Costs?
• Tax withholding , gasoline, doughnuts, groceries,
dentist, window, and mortgage interest
• What is the Net Change in Financial Position?
• Revenues $2,025 – Costs $1,993 = $32 Increase
• What is the Ending Financial Position?
• Beginning $9,327 + Increase $32 = Ending $9,359
© Dale R. Geiger 2011
51
The Simmons:
Statement of Activities
for month of January 2011
Revenues:
Gomer’s Salary (Gross)
Madge’s babysitting
Total Revenues
Costs:
Interest
Groceries
Tax Withholding
Gasoline
Dentist
Broken Window
Doughnuts
Total Costs
Net Change in Financial Position
Add: Financial Position January 1, 2011
Financial Position January 31, 2011
© Dale R. Geiger 2011
$2,000
25
$2,025
$938
600
150
120
100
50
35
1,993
32
9,327
$9,359
52
Graphic Representation of Net Change
$2025
$32
$1993
© Dale R. Geiger 2011
53
Graphic Representation of Net Change
$9359
$32
$9327
© Dale R. Geiger 2011
54
The Simmons:
Statement of Financial Position
1/31/11
Assets:
House
$230,000
Car
6,000
Furniture
3,000
Clothing
750
Cash (327+32)
359
Total
$240,109
Liabilities:
Mortgage
$225,000
Credit Card
2,300
Property Tax
2,500
Hospital
950
Total Liabilities $230,750
Net Assets:
9,359
Total
$240,109
© Dale R. Geiger 2011
55
Learning Check
• What activities will cause financial position to
increase?
• What activities will cause financial position to
decrease?
© Dale R. Geiger 2011
56
Financial Position Spreadsheet
Enter data in the
white spaces
© Dale R. Geiger 2011
57
Financial Position Spreadsheet
Use Tabs to Navigate
© Dale R. Geiger 2011
58
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
59
Statement of Activities Spreadsheet
Enter Transaction Data into the register
© Dale R. Geiger 2011
60
Statement of Activities Spreadsheet
After entering Data,
Press button to
Create Statement
Of Activities
© Dale R. Geiger 2011
61
Statement of Activities Spreadsheet
Statement of
Activities shows:
Total Revenues,
Total Costs ,
Change in Financial
Position, and Ending
Financial Position
62
© Dale R. Geiger 2011
Practical Exercise
© Dale R. Geiger 2011
63