Personal Budget, Balance Sheet and Cash Flow Statement

Memorandum

To: Mr. Burns, Monty Burns and Company Accounting Firm

From: CPA

Date: October 1, 2012

Subject: Personal Budget, Balance Sheet and Cash Flow Statement

When one examines financial success for an individual or business what are the attributes does one inspect? Would you look at the individual’s or businesses’ gross income? Perhaps one can examine the educational level of the individuals to determine their financial success? Or maybe it is the individual’s drive and risk appetite that created their success? Maybe, success can be attributed towards the individual’s ability to design and implement that plan? Ultimately, each one of these questions plays a pivotal role in the success of an individual or business. The purpose of this memorandum is for the couple of Homer and Marge Simpson. Upon initial consultation with Homer and Marge, liquidity was a major concern. Both expressed interest in freeing up money in order to save for retirement. We will analyze Homer and Marge’s personal budget, their balance sheet and cash flow statements. There will be a series of recommendations that will free cash flow and help Homer and Marge obtain their desired goals.

Homer is currently 31 and his wife, Marge is 30. The Simpsons have three children Bart, Lisa and Margret. Homer has a bachelor’s degree in physics and he is three classes short of completing his master’s in nuclear physics and from there he plans on obtaining a PhD. Marge has a double bachelor’s degree in marketing and economics. Homer works for the Springfield Power Plant, as a nuclear technician and his annual income is $75,000. Homer is in-line for a promotion which would increase his annual salary 15%. He contributes 3% of his annual income towards his company’s 401(k). He has no other retirement plans. Marge owns a small bakery that has a business formation as a sole proprietorship. Marge’s bakery has no other employees and the business has gross sales of $150,000 and a net profit of $50,000. She contributes 10% of her net profit to a SEP IRA.

Homer and Marge purchased their home in 2010, the property value was at the time was $395,000 with a loan amount of $350,000. The mortgage is fixed for 30 years with an interest rate of 5.75% and it is an FHA loan. Their monthly mortgage payments are over $2,000 dollars a month. Homer has a small student loan debt of $15,000 for his master’s degree. Homer has yet to begin making payments since he is still in school, however once he graduates the monthly payments will be $230 a month. Marge on the other hand, does not have any student loans; however she pays $1,800 a month for rent. The cost of her materials to bake with is well over $2,300 and her utility costs are $1,500 a month. Both Homer and Marge have accumulated $6,000