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Personal Financial Statements

Personal Financial Statements

A personal financial statement is a spreadsheet that outlines an individual’s financial position. Loan officers require financial statements when you apply for a loan, and so do prospective clients of small businesses. You might also be required to provide a statement to an employer if you are applying for a high-responsibility financial position. A personal financial statement usually includes general information about the person (name and address) along with a breakdown of their assets and liabilities. Any qualified accountant can create a financial statement for you. Typically, you would pay the accountant based on the amount of time it takes him or her to complete the statement. The better your records are, the less time it will take. A set of financial statements can cost between $200 and $300 the first time they are done.

Assets include balances in checking or savings accounts, retirement accounts, trading accounts and real estate. Assets are things owned that either bring in income or increase the individual’s net worth. Liabilities would include things such as credit card balances, loans and mortgages.

Personal financial statements are used when someone applies for credit, such as a loan or mortgage. They are necessary when preparing income tax returns. Personal financial statements provide a way for an individual to be aware of his or her cash flow. Cash flow is the amount left after deducting expenses from the income earned (it can be negative). The financial statement allows others to easily understand the applicant’s financial situation. As a result, they will be able to make a more informed credit decision regarding the applicant. A good statement shows responsibility and earning power.

One of the most common types of financial statements is a net worth/balance sheet. This would simply be a ledger of personal income and expenses. A cash flow statement shows the funds that came and went over a fixed time period. The combination of both of these statements creates a snapshot of an individual’s current financial situation, however, financial situations can change rapidly. That is why it is recommended that only a current statement be used to evaluate an individual or business. The IRS and state tax agencies require a lot of the same information that appears in financial statements. Keeping your financial statements up to date will help with filling out tax returns. You would also be more prepared for an IRS audit.

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