Example of Balance Sheet and Income Statement
Just like a business, an individual’s financial situation may be analyzed by understanding her balance sheet and income statements. Let’s look at Tricia’s financial statements below.
Tricia’s balance sheet shows a net worth of $474,200. This was calculated by starting with her assets and subtracting her liabilities. Notice that if Tricia uses some of her cash to pay down her mortgage, her net worth will not change. This is because she has reduced both her assets and her liabilities by the same amount. Tricia has a liquid net worth of $44,200. Liquid net worth is a measure that includes only those assets that can readily be converted into cash without losing substantial value in the process. Liquid assets include blue chip stocks, money market funds, CDs, mutual funds, T-bills, and exchange-traded funds.
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