Chapter 2 using Financial Statements and Budgets Flashcards
Annuity
A fixed sum of money that occurs annually.
Assets
Items that one owns.
Balance Sheet
A financial statement that describes a person’s financial position at a given points in time.
Budget Control Schedule
A summary that shows how actual income and expenses compare with the various budget categories and where variances (surpluses and deficits) exist.
Budgets
A detailed financial report that looks forward, based on expected income and expenses.
Cash basis
A method of preparing financial statements in which only transaction involving actual cash receipts or actual cash outlays are recorded.
Cash Budget
A budget that takes into account estimated monthly cash receipts and cash expenses for the coming years.
Cash deficit
An excess amount of expenses over income resulting in sufficient funds as well as in decreased net worth.
Cash Surplus
An excess amount of income over expenses that results in increased net worth.
Compounding
when interest earned each year is left in the account and becomes part of the balance on which interest is earned in subsequent years.
Current or short-term liabilities
Any debt due within 1 year of the date of the balance sheet.
Debt service ratio
Total monthly loan payments divided by monthly gross(before-tax) income; provides a measure of the ability to pay debt promptly.
Discounting
The Process of finding present value; the inverse of compounding to find future value.
Equity
The actual ownership interest in a specific asset or group assets.
Expenses
Money spent on living expenses and to pay taxes, purchase assets, or repay debt.
Fair market value
The actual value of an asset or the price for which it can reasonably be expected to sell in the open market.
Fixed Expenses
Contractual, predetermined expenses involving equal payments each period.
Future Value
The value to which an amount today will grow if it earns an specific rate of interest over a given period.
Income
Earnings receives as wages, salaries, bonuses, commissions, interest and dividends, or proceeds from the sale of assets.
Income and expense statement
A financial statement that measures financial performance over time.
Insolvency
The financial state in which net worth is less than zero.
Investments
Assets such as stocks, bonds, mutual funds, and real estate that are acquired in order to earn a return rather than provide a service.
Liabilities
Debts, such as credit cards charges, loans and mortgages.
Liquid Assets
Assets that are held in the form of cash or can readily be converted to cash with little or no loss in value.
Liquidity Ratio
Total liquid assets divided by total current debts; measures the ability to pay current debts.
Long-term liabilities
Any debt due 1 year or more from the date of the balance sheet.
Net worth
An individual’s or family’s actual wealth; determined by subtracting total liabilities from total assets.
TOTAL ASSETS – TOTAL LIABILITIES= NETWORTH
Open account credit obligations
Current liabilities that represent the balances outstanding against establishing credit lines.
Personal Financial Statements
Balance Sheets and income and expense statements that serve as planning tools that are essential to developing and monitoring personal financial plans.
Personal Property
Tangible assets that are movable and used in everyday life.
Present Value
The value today of an amount to be received in the future, it is the amount that would have to be invested today at a given interest rate over a specified time period to accumulate the future amount.
Real Property
Tangible assets that are immovable; land and anything fixed to it, such as a house.
Savings Ratio
Cash surplus divided by net income(after tax); indicated relative amount of cash surplus achieved during a given period.
Solvency Ratio
Total net worth divided by total assets; measures the degree of exposure to insolvency.
Time value of money
the concept that a dollar today is worth more than a dollar received in the future.
Variable Expenses
Expenses involving payment amounts that change from one time period to the next.
