July 29, 2013
ACC 547 Week 1
Personal Budget, Balance Sheet, and Cash Flow Statement
Professor Jackie Blankenship
Summary of facts for George and Dora Carvel
George Carvel is 35 years old and is a full-time speech therapist. He received his BA in Science and a Masters in Speech Language Pathology. His current annual income is $65,000. Dora Carvel is 34 years old and works part-time as a customer service representative for an insurance agency. She received her BA in business with a concentration in accounting. Her current salary is $19,000. Dora work part-time so that she can be available for their two kids Esther and Ben who need to be driven to and from school as well as to after school programs.
The fact remains that George and Dora don’t have enough money in their saving and more specifically in their liquid assets. Our goal is to review the current budget, balance sheet, and cash flow statement and find areas that be trimmed, which will allow for additional savings.
Summary of key findings from personal budget, balance sheet, and cash flow statement
The following ratios were calculated:
Debt ratio - .76
Current ratio – 1.43
Liquidity ratio – 1.05
Debt-payment ratio - .11
Savings ratio - .028
The two ratios that are of concern are liquidity and savings. Liquidity ratio determines the number of months that the family can pay living expenses in case of an emergency. It is recommended to have 3-6 months of monthly living expenses available. George and Dora have enough for only one month.
Savings ratio is the percentage of gross income saved each month. It is recommended to save between 5-10 percent. Currently George and Dora are not even saving a full 3 percent.
George and Dora can mend both the liquidity and savings ratio with one solution. Start saving more each month. This is not an easy task. However, they need to start “paying themselves first”. Their current monthly savings should go from $200 to $400. This will...