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Personal Financial Planning 14th Edition

Personal Financial Planning (14th Edition)

Book Edition14th Edition
Author(s)Billingsley, Gitman
ISBN9781305636613
PublisherCengage Learning
SubjectFinance
Section 2-1: MAPPING OUT YOUR FINANCIAL FUTURE
TEST YOURSELF
Section 2-2: THE BALANCE SHEET: HOW MUCH ARE YOU WORTH TODAY?
Section 2-3: THE INCOME AND EXPENSE STATEMENT: WHAT WE EARN AND WHERE IT GOES
Section 2-4: USING YOUR PERSONAL FINANCIAL STATEMENTS
Section 2-5: CASH IN AND CASH OUT: PREPARING AND USING BUDGETS
Section 2-6: THE TIME VALUE OF MONEY:PUTTING A DOLLAR VALUE ON FINANCIAL GOALS
Chapter 2, Section 2-1, TEST YOURSELF, Exercise 2-1
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What are the two types of personal financial statements? What is a budget, and how does it differ from personal financial statements? What role do these reports play in a financial plan?

Explanation

The two types of personal financial statements are;

- Personal cash flow statement-It is used to measure both your cash inflows and cash outflows in order to arrive at net cash flow for a specific period of time. 

- Personal balance sheet- The main purpose of a personal balance sheet is to show the assets you possess and the liabilities you owe at that particular time. When computed, the positive assets and the negative liabilities will show your network.

 

A budget refers to an estimation of revenues and expenses over a particular future period f time. It is usually re-evaluated on a periodic basis.  It differs from personal financial statements in that these statements list all your assets and liabilities to determine your net worth.  In addition, these statements are used if you are looking to purchase an existing business. 

 

Role of personal financial statements

- They are used to determine the profit r loss generated in an organization during the reporting period. 

-Income statements are used t determine the trends in the revenues and expenses.

-Personal balance sheets are used in depicting the financial status of a person during a particular point in time.   

-Information concerning available resources is also given to ensure that financial planning is conducted in the best way possible.

 

references

https://www.nicholsaccounting.com/financial-statements/personal-financial-statements/

https://www.investopedia.com/terms/b/budget.asp

https://www.accountingtools.com/articles/the-purpose-of-the-income-statement.html

https://www.accountingtools.com/articles/the-purpose-of-the-balance-sheet.html

 

Answer

Below is an explanation of the two types of personal financial statements and their roles in financial planning;

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