Yesterday, I began a new series called “Financial Planning Basics” and started with a post about the net worth statement. Today, I’ll take the net worth statement a little further and show some various transactions and their effect on the net worth statement. While studying these examples, keep in mind the net worth equation:
Withdraw $5,000 from your savings account to pay for a vacation:
Withdraw $5,000 from savings and charge $2,000 to your credit card to pay for a new dining room suite:
To reflect the withdrawal from savings and the additional liability on your credit card:
To reflect the addition of the dining room suite to asset-side of the equation:
Those are a couple of examples to illustrate the accounting involved with net worth statements. With my next post, we’ll dive a little deeper into net worth statements.