Financial Accounting Personal Financial Situation This Essay

Financial Accounting

Personal Financial Situation

This essay examines the personal financial statements of Manny Harris, part-time student and part-time sales associate at Wal-Mart. Manny is considering three significant life events that will affect details of his financial statements.

The first significant change in his personal circumstances that Manny is considering is whether to apply for a loan so that he can afford to attend college full-time. Manny is concerned with the trade-offs involved; he wonders whether a bachelor's degree will help him obtain a job with sufficient compensation to justify the burden of paying back student loans. According to Oloffson in her Time magazine article, Manny's concerns are well-founded. The cost of average tuition rose by 6.5% during the fall of 2009, and the average amount of student debt rose to $23,200 in 2008. However, the unemployment rate for recent graduates rose as well, and stood at a record high of 10.6% at the time the article was published. Furthermore, Oloffson quotes hiring executives who advocate that there are a lot of things besides a degree that will help differentiate how much attention a graduate gets from potential employers (Oloffson, 2009).

On the other hand, the Census Bureau reported in 2010 that workers with an advanced degree earned more than $83,000 on average in 2008, compared with about $59,000 for those with a bachelor's degree, and about $31,000 for those whose highest degree was a high school diploma (Mantell, 2010).

Factors that Manny should review in looking at his financial statements are his net worth, as shown on his balance sheet; also his cash balance as shown by his cash flow statement. It would be worthwhile for Manny to do enough research to feel comfortable that he knows what type of compensation to expect once he obtains his degree, at which point Manny should prepare projected financial statements. Realistically, his balance sheet will show an increase in assets, but so will his long-term liabilities increase. His income statement will likewise show increases in income as well as expenses. If Manny were to create an interim projected balance sheet and cash flow statement following receipt of the student loan, Manny will see his cash balance decrease each period from the time the student loan is disbursed.

If Manny decides not to attend college full-time, he may well decide to look for a better-paying, full-time job. If he is successful at finding full-time employment, he can expect to see the results in changes to all his financial statements. He may well be able to afford to invest more of his money, in which cases his assets and net worth will increase (assuming he maintains his expenses at close to their current levels.) Also, his financial statements won't show direct opportunity costs for foregoing a college degree, but Manny may well consider how his financial statements will change with full-time employment, positive changes to income, cash and net worth today vs. future income, cash and net worth changes with the higher salary that a degree commands. Manny might also consider getting a second job to pay off some of the items that appear in his cash flow statement, credit card payments, as well as learn about investing, as Barbara Stanny, wealth coach, suggests in her financial advice to young people (Stanny, 2011).