Finance Chapter 2
Financial documents that you may need quick access to should be kept in a safe deposit box
False
The main purposes of personal financial statements are to
Provide data for preparing tax forms or applying for credit. Measure your progress toward financial goals. Maintain information about your financial activities. Report your current financial position.
When creating a personal balance sheet, which of the following is an investment asset?
Retirement account
Which of the following ratios shows the relationship between gross income and money saved?
Savings ratio
The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns?
Seven years
Which of the following is NOT a main purpose of a budget?
Spend your money without care
Rebecca Wilson budgeted $395 for a new wardrobe in June. She actually spent $425. What is her budget variance?
$30 deficit
Given the following information, calculate the net worth:Assets = $8,000Cash inflows = $6,000Cash outflows = $4,500Liabilities = $4,000
$4,000 (Assets - Liabilities = Net worth; $8,000 - 4,000 = 4,000)
A family with $100,000 in assets and $60,000 of liabilities would have a net worth of
$40,000
Given the following information, calculate the current ratio:Liquid assets = $5,000Monthly credit payments = $800Monthly savings = $760Net worth = $75,000Current liabilities = $2,000Take-home pay = $2,300Gross income = $3,500Monthly expenses = $2,050
2.50 (Liquid assets/Current liabilities = 5,000/2,000 = 2.50.)
How long should you keep documents relating to investments?
As long as you have these items.
The document that would report your current financial position is the
Balance Sheet
Which of the following ratios shows the relationship between debt and net worth?
Debt ratio
In an organized system of financial records, credit card records belong in a safe deposit box.
False
A high debt ratio is best.
False (A low debt ratio is best, liabilities/net worth.)
One method to spend more money is to deduct an amount automatically from your salary in a direct deposit system.
False (Automatically deducting an amount from your salary and depositing it in savings is one method to make saving easier.)
Net worth is the amount owed to others.
False. Liabilities are amounts owed to others. Net worth is your wealth and is calculated as total assets minus total liabilities.
An example of a variable expense is a(n)
Electric Bill
A budget system that can be kept on notebook paper or accounting paper is called a
Written budget.
Which of the following is a cash inflow?
income from employment
The number of personal financial records a household has to organize may seem overwhelming. How long should you keep documents relating to the purchase and sale of real estate?
Indefinitely
Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises?
Liquidity ratio
Which of the following appears as a cash outflow on a cash flow statement?
Loan payment
Discretionary income equals
Money left over after paying for housing, food, and other necessities.
In an organized system of financial records, birth and marriage certificates belong in a safe deposit box.
True (These records belong in a safe deposit box or a fireproof home safe)