Finance Ch 2

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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


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