AFC Personal Financial Statements and Net Worth Analysis

Question 1

A client's personal balance sheet shows total assets of $285,000 and total liabilities of $112,000. What is the client's net worth?

Accepted Answer

$173,000

Answer

Net worth equals total assets minus total liabilities: $285,000 − $112,000 = $173,000. The balance sheet equation is Assets = Liabilities + Net Worth.

Question 2

Which financial statement shows a client's monthly income sources and all expenses to determine whether they have a surplus or deficit?

Accepted Answer

Cash flow statement

Answer

A cash flow statement (also called an income and expense statement) tracks money flowing in (income) and out (expenses) over a period, revealing a surplus or deficit. A net worth/balance sheet is a snapshot of assets and liabilities at a point in time.

Question 3

A client has monthly gross income of $5,000 and total monthly debt payments of $1,750. What is their debt-to-income (DTI) ratio?

Accepted Answer

35%

Answer

DTI = monthly debt payments ÷ gross monthly income × 100 = $1,750 ÷ $5,000 × 100 = 35%. Lenders typically prefer a DTI below 36%, and the AFC exam expects counselors to identify clients at risk using this ratio.

Question 4

On a personal net worth statement, which of the following would be classified as a liability?

Accepted Answer

Outstanding student loan balance

Answer

Liabilities are amounts owed to others. An outstanding student loan balance is a debt obligation and therefore a liability. Vehicles, checking accounts, and 401(k) balances are assets because they represent things the client owns or is entitled to.

Question 5

A client saves $400 per month on a gross income of $4,000 per month. What is their savings rate, and how does it compare to the commonly recommended minimum?

Accepted Answer

10%; meets the commonly recommended minimum of 10%

Answer

Savings rate = savings ÷ gross income = $400 ÷ $4,000 = 10%. The widely cited rule of thumb is to save at least 10% of gross income, so this client exactly meets that benchmark — though many planners recommend 15–20% for retirement adequacy.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Personal Financial Statements and Net Worth Analysis