SHORT ANSWER · NET WORTH METHOD
What is the net worth method?
The net worth method finds unexplained funds by comparing how much someone’s wealth grew with the income they can show. In plain words: the change in net worth, plus personal spending, minus known income, equals unexplained funds. Tax investigators and forensic accountants use it when spending and assets don’t match the income on paper.
DEFINITION
What is a net worth method?
The net worth method is an indirect way to find unexplained income by comparing how much a person’s wealth grew, plus what they spent, with the income they can account for.
WORKED EXAMPLE
How does the formula work with real numbers?
One made-up year, round numbers. Choosing a tool? See the best asset tracing software.
| Line | Amount |
|---|---|
| Net worth at the end of the year | 410,000.00 |
| Less net worth at the start of the year | −330,000.00 |
| Change in net worth | 80,000.00 |
| Plus personal spending during the year | 62,000.00 |
| Less known income | −95,000.00 |
| Unexplained funds | 47,000.00 |
Net worth is everything owned minus everything owed, at each date. The 47,000.00 is a figure to explain, not a conclusion.
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WHERE THE NUMBERS COME FROM
Which records feed the net worth method?
Bank and brokerage statements give the balances at each date, and loan and card statements give what’s owed. Personal spending comes from card and bank activity, which is the same work as what is a lifestyle analysis?
Every one of those balances has to be right. ZeraBooks proves each statement to its printed balances and flags a month missing inside a quarterly brokerage statement. Money that moved between accounts is followed as in how do you trace funds through bank accounts?, and the wider job is what is asset tracing?
When is the net worth method used?
When the books are missing or unreliable and the person’s assets or lifestyle seem larger than their reported income.
Is the net worth method the same as the bank deposits method?
No. The net worth method starts from wealth at two dates; the bank deposits method starts from the deposits themselves. Both are indirect ways to test income.
Does ZeraBooks calculate net worth?
No. ZeraBooks proves the bank, card, loan and brokerage statements the calculation needs. The calculation and what it means are the expert’s.
Sources and further reading
FREE CUSTOM BUILD
Start the formula from proven balances.
Every statement tied.
ZeraBooks proves each bank, card, loan and brokerage statement, so both ends of the net worth comparison hold up.