Intermediate Cost Analysis and Management 1 Why is it useful to know an entitys financial position 2 Terminal Learning Objective Action Interpret Changes in a Financial Position Over a Period of ID: 745459
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Slide1
Interpret Changes in a Financial Position Over a Period of Time
Intermediate Cost Analysis and Management
1Slide2
Why is it useful
to know an entity’s financial position?
2Slide3
Terminal Learning Objective
Action: Interpret Changes in a Financial Position Over a Period of
Time
Condition
: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE) variables and actorsStandard:
W
ith at least 80% accuracy:
Classify assets & liabilitiesClassify revenues and expenses (cash basis)Enter relevant report data to solve Financial Position equation (using macros provided in Excel template)
3Slide4
Meet the Simmons Family
Gomer, Madge and kids:
Bert, Lacy and baby
Maddie
Stunt doubles for a popular cartoon familyTask: Calculate the family’s Financial Position
4Slide5
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
5Slide6
What’s an Asset?
An Asset is:Something you OWN
R
epresents
FUTURE BENEFITWhat kinds of assets might the Simmons family own?6Slide7
What’s an Asset?
An Asset is:Something you OWN Represents
FUTURE BENEFIT
What kinds of assets might the Simmons family own?
7Slide8
What’s an Asset?
An Asset is:Something you OWN
R
epresents
FUTURE BENEFITWhat kinds of assets might the Simmons family own?8Slide9
What’s an Asset?
An Asset is:Something you OWN
R
epresents
FUTURE BENEFITWhat kinds of assets might the Simmons family own?9Slide10
What’s a Liability?
A Liability is:Something you OWE
Represents
FUTURE SACRIFICE
A creditor’s CLAIM against your assetsWhat kinds of Liabilities might the Simmons family have?
10Slide11
What’s a Liability?
A Liability is:Something you OWERepresents
FUTURE SACRIFICE
A
creditor’s CLAIM against your assetsWhat kinds of Liabilities might the Simmons family have?
11Slide12
What’s a Liability?
A Liability is:Something you OWERepresents
FUTURE SACRIFICE
A
creditor’s CLAIM against your assetsWhat kinds of Liabilities might the Simmons family have?
12Slide13
What’s a Liability?
A Liability is:Something you OWERepresents
FUTURE SACRIFICE
A
creditor’s CLAIM against your assetsWhat kinds of Liabilities might the Simmons family have?
13Slide14
What’s a Liability?
A Liability is:Something you OWERepresents
FUTURE SACRIFICE
A
creditor’s CLAIM against your assetsWhat kinds of Liabilities might the Simmons family have?
14Slide15
LSA #1 Check on Learning
Q1. What is the equation to represent financial position?
A1.
Q2
. Which element of the equation represents future benefits of the entity?A2.
15Slide16
LSA #1 Summary
During this lesson, we introduced the Financial Position equation and discussed some accounting terminology with definitions.
16Slide17
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 400Furniture receipts 3,000Credit card statements 2,300 Property tax bill 2,500 The kids’ birth certificates -0-Hospital bill for
Maddie
950
Clothing receipts 750Bank Statement (reconciled balance) 307.47Cash in Madge’s purse
20
Task: Calculate the Simmons’ Net Worth
17Slide18
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 6,000Grocery receipts 400Furniture receipts 3,000Credit card statements 2,300 Property tax bill 2,500
The kids’ birth certificates -0-
Hospital bill for
Maddie 950Clothing receipts 750
Bank Statement (reconciled balance) 307.47
Cash in Madge’s purse
20
Task: Calculate the Simmons’ Net Worth
18Slide19
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 6,000Grocery receipts 400Furniture receipts 3,000
Credit card statements 2,300
Property tax bill 2,500 The kids’ birth certificates -0-
Hospital bill for
Maddie
950
Clothing receipts 750
Bank Statement (reconciled balance) 307.47
Cash in Madge’s purse
20
Task: Calculate the Simmons’ Net Worth
19Slide20
Classifying Assets & Liabilities
Assets:House $230,000
Car 6,000
Furniture
3,000Clothing 750Cash (Bank + purse) 327.47Total $240,077.
47
Liabilities:
Mortgage $225,000
Credit Card 2,300
Property Tax 2,500
Hospital
950
Total
$230,750
Financial Position or Net Worth =
$240,077.
47
- $230,750 =
$9,327.
47
20Slide21
Graphic Solution
21Slide22
LSA #2 Check on Learning
Q1. Which of the following would be considered a liability?
A1.
Checking account $327
Credit card account $246Groceries $50Q2. Assuming these are the only relevant items, what is the financial position?
A2.
22Slide23
LSA #2 Summary
During this lesson, we distinguished the difference between assets and liabilities, and gave clear examples of each.
23Slide24
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)
24Slide25
Statement of Financial Position
Assets:
House $230,000
Car 6,000
Furniture 3,000Clothing 750Cash (Bank + purse) 327.47
Total
$240,077.
47Liabilities:
Mortgage $225,000
Credit Card 2,300
Property Tax 2,500
Hospital
950
Total
Liab
. $
230,750
Net Worth 9,327.
47
Total
$
240,077.
47
25Slide26
What about the groceries?
Items that will be consumed during the current month are considered ExpensesWhat about the kids?
Questions
26Slide27
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:
F
inancial information must be measured and reported in a monetary unit such as U.S. Dollars27Slide28
Questions
What about the groceries?I
tems 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:
F
inancial information must be measured and reported in a monetary unit such as U.S. Dollars28Slide29
Questions
What about the groceries?I
tems 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
29Slide30
Questions
What about the groceries?I
tems 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
30Slide31
Questions
What about the groceries?I
tems 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
31Slide32
Questions
Isn’t the house worth more now than when they bought it?P
ossibly, 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 transactionIs 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
32Slide33
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
33Slide34
Questions
Isn’t the house worth more now than when they bought it?P
ossibly, 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 transactionIs 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
34Slide35
Questions
Isn’t the house worth more now than when they bought it?P
ossibly, 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 transactionIs 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
35Slide36
LSA #3 Check on Learning
Q1
. What is the name of the report that presents a government organization’s financial position? An individual’s?
A1.
Q2. What is the time frame of this report?A2.
Q3
. What
principle defines the value that should be reported for an asset on the Statement of Financial Position? A3.
36Slide37
LSA #3 Summary
During this lesson, we completed a statement of financial position complete with assets and liabilities, and posed some relevant questions pertaining to the process.
37Slide38
What if Gomer inherits $1,000,000?
38Slide39
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
Ending
Financial
Position
Statement of Activities
39Slide40
Changes in Financial Position
The Statement of Activities, or Income Statement, reflects activity for a period of time. (Like a video)
Beginning
Financial
Position
Ending
Financial
Position
Statement of Activities
40Slide41
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 receivedDecrease Assets and Decrease Financial PositionRepresent cash payments for goods and services receivedDecrease Assets and Decrease Financial Position
Reve
Revenues – Costs =
Net Change in Financial Position
nues – Costs =
Net Change in Financial Position
41Slide42
LSA #4 Check on Learning
Q1. What is the equation for the change in financial position?
A1.
Q2
. What is the name of the statement that describes changes in financial position?A2.
42Slide43
LSA #4 Summary
During this lesson, we discussed the summary of changes in a financial position and provided the following formula;ReveRevenues – Costs =
Net Change in Financial Position
43Slide44
The Simmons:
Statement of Financial Position
1/1/XX
Assets:
House $230,000
Car 6,000
Furniture
3,000Clothing 750
Cash 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
44
NOTE
: XX represents current FY.Slide45
The Simmons: Financial Activity for January
Date
Activity
Cash
Amount
2-Jan
Madge
puts gasoline in the car
120
4-Jan
Gomer buys
doughnuts
35
7-Jan
Gomer’s
paycheck
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
925
22-Jan
Madge pays
interest on mortgage
938
Task: Calculate the Net Change in Financial Position for January.
45Slide46
The Simmons: Financial Activity for January
Date
Activity
Cash
Amount
2-Jan
Madge
puts gasoline in the car
120
4-Jan
Gomer buys
doughnuts
35
7-Jan
Gomer’s
paycheck
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
925
22-Jan
Madge pays
interest on mortgage
938
Task: Calculate the Net Change in Financial Position for January.
46Slide47
The Simmons: Financial Activity for January
Date
Activity
Cash
Amount
2-Jan
Madge
p
uts
gasoline in the car
120
4-Jan
Gomer buys
doughnuts
35
7-Jan
Gomer’s
paycheck
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
925
22-Jan
Madge pays
interest on mortgage
938
Task: Calculate the Net Change in Financial Position for January.
47Slide48
The Simmons:Changes in Financial Position
What are the Revenues?
Gomer’s pay and Madge’s babysitting $
1875
gross pay and Madge’s babysitting What are the Costs? Gasoline, doughnuts, groceries, dentist, window, and mortgage
interest = $
1843
ax withholding , gasoline, doughnuts, groceries, dentist, window, and mortgage interestWhat is the Net Change in Financial Position?
Revenues
$1875 – Costs $1843 = $32
Increase
Revenues $2,025 – Costs $1,993 = 2 Increase
What is the Ending Financial Position?
Beginning
$9,327 + Increase $32 = Ending $9,359
Beginning $9,327 + Increase $32 = Ending $9,359
48Slide49
The Simmons:
Statement of Activities
for month of January 20XX
Revenues:
G
omer’s Salary (Net) $1,850
Madge’s babysitting
25 Total Revenues $1,875Costs:
Interest $938
Groceries 600
Gasoline 120
Dentist 100
Broken Window 50
Doughnuts
35
Total Costs
1,843
Net Change in Financial Position 32
Add: Financial Position January 1, 20XX
9,327
Financial Position January 31, 20XX
$9,359
49Slide50
Graphic Representation of Net Change
$32
$1875
$1843
50Slide51
$32
$9359
$9327
51
Graphic Representation of Net ChangeSlide52
The Simmons:
Statement of Financial Position
1/31/XX
Assets:
House $230,000
Car 6,000
Furniture
3,000Clothing 750
Cash (325+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
52Slide53
LSA #5 Check on Learning
Q1. What activities will cause financial position to increase?
A1.
Q2
. What activities will cause financial position to decrease?A2.
53Slide54
LSA #5 Summary
In this lesson, we conducted a demonstration problem based on a given scenario. This involved revenues and costs that were eventually plugged into a formula, resulting in a graphed representation of the answers.
54Slide55
Enter data in the white spaces
55
Financial Position SpreadsheetSlide56
Use Tabs to Navigate
56
Financial Position SpreadsheetSlide57
Financial Position Spreadsheet
The spreadsheet uses the data you entered to produce the Statement of Financial Position and the pie graph
57Slide58
Statement of Activities Spreadsheet
Enter Transaction Data into the register
58Slide59
After entering Data,
Press button to
Create Statement
Of Activities
59
Financial Position SpreadsheetSlide60
Statement of Activities Spreadsheet
Statement of Activities shows:
Total Revenues,
Total Costs ,
Change in Financial Position, and Ending Financial Position
60Slide61
Conduct Practical Exercise
61Slide62
TLO Summary
Action: Interpret Changes in a Financial Position Over a Period of Time
Condition:
You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE
) variables and actorsStandard: With at least 80% accuracy:
Classify
assets &
liabilitiesClassify revenues and expenses (cash basis)Enter relevant report data to solve Financial Position equation (using macros provided in Excel template)
62