One of the best ways to learn about financial statements is to prepare them. Put together your personal balance sheet and income statement, using Exhibits 14.4 and 14.5 as samples. You will have to adjust the account categories to fit your needs. Here are some suggestions:

Current assets—cash on hand, balances in savings and checking accounts.

Investments—stocks and bonds, retirement funds.

Fixed assets—real estate, personal property (cars, furniture, jewelry, etc.).

Current liabilities—credit card balances, loan payments due in one year.

Long-term liabilities—auto loan balance, mortgage on real estate, other loan balances that will not come due until after one year.

Income—employment income, investment income (interest, dividends).

Expenses—housing, utilities, food, transportation, medical, clothing, insurance, loan payments, taxes, personal care, recreation and entertainment, and miscellaneous expenses.

After you complete your personal financial statements, use them to see how well you are managing your finances. Consider the following questions:

a. Should you be concerned about your debt ratio?

b. Would a potential creditor conclude that it is safe or risky to lend you money?

c. If you were a company, would people want to invest in you? Why or why not? What could you do to improve your financial condition? (Information)