Finance Ch 2
Which of the following is a financial statement that reports what an individual or a family owns and owes?
balance sheet
Liquid assets
cash and items of value that can easily be converted to cash -cash -money in checking and savings accounts -money market account -cash value of life insurance
The two documents considered to be part of personal financial statements include the personal balance sheet and which of the following?
cash flow statement
The most common overspending areas to evaluate when revising your goals and budget allocations are _____ and ______.
entertainment and food
How often should you prepare a balance sheet?
every three to six months
T/F: In determining income, you should include all expected commissions.
false
T/F: Medical bills, credit card balances, and home equity loans are all examples of current liabilities.
false -home equity loans are long-term liabilities
Types of expenses
fixed and variable
Invoices, credit card statements, ____ policies, and tax forms are the basis of financial record keeping and personal economic choices
insurance
Which combination of liabilities would be classified as current on a balance sheet?
medical bills, income tax payments owed, insurance premiums to be paid next month, and charge amounts
Discretionary income
money left over after paying for housing, food, and other necessities
Is real estate considered a liquid asset?
no
Money management refers to the daily financial activities necessary to manage current ______ economic resources while working toward long-term financial security.
personal
A cash flow statement shows a summary of cash ___ and payments for a given period such as a month or a year
receipts/income
Fixed expenses
rent, mortgage, installment loan payments, wifi, monthly ticket for commuting
What is a balance sheet?
reports what you own and owe (net worth statement or statement of financial position)
What is step one of creating a personal balance sheet?
subtract liabilities from assets to determine net worth
What is cash flow
the actual inflow and outflow of cash during a given period of time
Budget variance
the difference between the amount budgeted and the actual amount received or spent
Balance sheet equation
total assets - total liabilities = net worth
The balance sheet equation is
total assets - total liabilities = net worth
T/F: The statement of cash flow is a summary of cash receipts and payments for a given period.
true
Time ___ of money calculations can be used to calculate progress toward achieving different financial goals.
value
Flexible payments that change from month to month are called __________ expenses.
variable
When you calculate a budget ____, you determine the difference between the actual amount spent or received and the amount budgeted.
variance
Tommy White has the following financial items on his balance sheet: $10,000 of liquid assets, $15,000 of personal property, $300,000 of real estate, $5,000 of current liabilities, and $120,000 of home mortgages. What is his net worth?
$200,000
If Joe and Mary Smith have money market accounts of $100,000, real estate holdings of $300,000, loans of $25,000, and investments of $10,000, what would their total assets be?
$410,000
If Tom and Liz Gomes have liquid assets of $200,000, real estate of $350,000, home improvement loans of $250,000, and investments of $30,000, what would their total assets be?
$580,000
Joe borrowed $100,000 (a four-year loan at 10 percent interest) on January 2, 2020. During the course of the year, he paid back $30,000 on that debt. What would his December 31, 2020 balance sheet show for this debt? Interest is an expense and not part of the loan balance.
$70,000 because the balance sheet should report what is owed on the balance sheet date
Take-home pay
(net pay) a person's earnings after deductions for taxes and other items
Cash flow statement
(personal income expenditure) summary of cash receipts and payments for a given period
Types of liablities
-Current: debts due within a short time, like 12 months -Long-term: beyond the next 12 months
Main money management activities
-financial documents -financial statements -budgeting
Which of the following are the major money management activities?
-preparing personal financial statements -storing and maintaining personal financial records -creating and implementing a plan for savings
Basis of financial recordkeeping
-purchase receipts -insurance policies -tax forms -credit card statements
Which of the following can help you to achieve your financial goals?
-save coins in a jar -save between 5 and 10% of each paycheck -write a check each paycheck to deposit into a savings account -have savings deducted and automatically deposited into a savings account from each paycheck
How long should an emergency fund last?
3-6 months
