Three targets of this material. Basic finance, accounting principles and financial reports

Transcription

1 Page 1 Basic finance, accounting principles and financial reports in plain English Three targets of this material 1. Understand what is on a Balance Sheet 2. Learn what makes up an the Income or Performance Statement 3. Uncover relevant accounting practices

2 Page 2 Agenda Your personal balance sheet as a familiar place to start We ll look at familiar arrangements for the balance a sheet, and what s on it We ll look at the income statement Q & A -- and along the way

3 Page 3 In your study guide, next to this image 1. Enter a few asset items you own and their approximate market values, to the nearest thousand ($000) Home value Total value of vehicles Retirement funds Savings Checking In your study guide, next to this image 2. Enter some of your liabilities and their approximate balances in thousands Home mortgage balance Loans on vehicles CC Debt In your study guide, next to this image 3. Subtract Sub-Total Liabilities total from Sub-. The result is your estimated personal.

4 Page 4 Typical Credit Union Balance Sheet Layouts Assets Assets Liabilities & Member Shares Liabilities & Member Shares Over-Under Side-By-Side Cash Shares When the first member deposited Total Liab. & NW

5 Page 5 Assets Member Shares, Liabilities and Net Worth Transactions also balance: debits = credits Primarily Debt Balance Accounts Primarily Credit Balance Accounts Total Liab. & NW

6 Page 6 Application of Funds Sources of Funds Total Liab. & NW How Your Personal Balance sheet and the Credit Union s Differ fixed assets Market value Depreciated Book Value Depreciation Matching Principle: match revenue with portions of the cost of an asset over the period served by that t asset; A.K.A. Useful life. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

7 Page 7 Acquisition of CU assets involves trading other assets for it. CASH & INVESTMENTS Acquisition of CU assets involves trading other assets for it. FIXED ASSETS CASH INVESTMENTS Accumulated Depreciation is a contra or negativebalance asset. FIXED ASSETS Contra Asset Accumulated Depreciation CASH INVESTMENTS

8 Page 8 How Your Personal Balance sheet and the Credit Union s Differ - investments Personal = market values Market Values help you keep current tabs on your estimated net worth. Book Values and Notes are more consistent for evaluating investment opportunities. How Your Personal Balance sheet and the Credit Union s Differ - investments an investment reserve or loss allowance is another contra or negativebalance asset to explore. Investments Contra Asset Market devaluation Investments Training

9 Page 9 How Your Personal Balance sheet and the Credit Union s Differ Accounting Formula: Personal formula Assets liabilities = net worth Business formula Assets = liabilities + net worth The Allowance for Loan Losses Loans - Allowance = Net Loans Loans Contra Asset Allowance

10 Page 10 Secured loans Unsecured loans Allowance Potential loan losses based on borrower risk category A B C D E Allowance The Allowance as a Bucket When charging off a loan the ALL Bucket figuratively springs a leak and drains the amount of the charged off loan.

11 Page 11 The Allowance as a Bucket When the ALL balance falls below the ALL requirement, post a PLL expense with the same amount to figuratively refill the Bucket. Liquidity Member Secured Loans Member Shares L-T CDs S-T CDs Retirement Unsecured Loans Allowance FIXED ASSETS Accumulated Depreciation CASH & INVESTMENTS Regular Shares Share Draft Liabilities Income / Performance Statement + Interest Incomes - Cost of Funds = Gross Margin - Provision for loan losses

12 Page 12 Income / Performance Statement + Interest Incomes - Cost of Funds = Gross Margin + non-interest Inc - Operating Exp. - provision for loan losses Income / Performance Statement + Interest Incomes - Cost of Funds = Gross Margin + non-interest Inc - Operating Exp. - provision for loan losses = Net Income Final questions