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What is a personal financial statement?

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December 15, 2016
Core Group US
Tax Advice
What is a personal financial statement?

What is a personal financial statement?
The bulk of a personal financial statement is a list of all of your personal assets and your personal liabilities at one particular point in time.  It is similar tour your company’s balance sheet.  For example, the asset section of your personal financial statement lists all of your personal bank account balances, equity in personal real estate, fair market value of companies owned, the value of stock, etc.  The liability section lists all of your liabilities including bank loans, mortgages on real estate, credit cards payable, etc.  The difference between your total assets and your total liabilities is shown as your Net Worth (Assets – Liabilities = Net Worth).  It is important to remember that this is a personal financial statement.  So, don’t include the assets/liabilities of your business unless you are a sole proprietor.  A good rule of thumb is that if it is already included on the balance sheet of your business, they do not include it on your personal financial statement.  The personal financial statement may include other personal information as well including name, address, current wages, etc.

Why do I need a personal financial statement?

Most of our clients need a financial statement for one of two reasons.  First, they are trying to obtain financing and the bank asks for a personal financial statement.  The bank uses this information to make its decision on strength of borrower and ability to repay a loan.  It is important to have a clean and accurate personal financial statement for the lender.  For example, a business that has requested a line of credit at the bank is likely going to need to provide business financial statements, tax returns, and a personal financial statement from the owner’s of the business.  Second, a personal financial statement is often used with financial advisors to make the best decision about future financial plans.  A financial advisor typically needs to look at the entire financial picture to provide the most accurate advice.  For example, a client that wants to retire needs to understand how retirement is going to affect their future finances.  A financial advisor is able to use the personal financial statement to help the client make financial decisions.

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