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Finance 3300 > Chapter 3 > Flashcards

Chapter 3 Flashcards

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1
Q

Define money management.

A

the day-to-day financial activities needed to manage personal economic resources, while working toward long-term financial security

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2
Q

What are the three components of money management?

A

storing and maintaining financial documents; creating personal finance statements; creating and implementing a plan for spending/saving

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3
Q

How long should you keep personal and employment records?

A

1 year

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4
Q

How long should you keep money management records?

A

3 years

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5
Q

How long should you keep tax records?

A

7 years

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6
Q

How long should you keep financial services records?

A

1 year

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7
Q

How long should you keep consumer purchase, auto/credit records?

A

1 year

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8
Q

How long should you keep housing records?

A

forever

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9
Q

How long should you keep insurance records?

A

as long as policy is in force

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10
Q

How long should you keep investment records?

A

as long as you own it

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11
Q

How long should you keep estate planning/retirement records?

A

forever

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12
Q

How long should birth records/wills/Social Security information be kept?

A

forever

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13
Q

What are the 4 purposes of personal financial statements?

A

Report your current financial position in relation to the value of the items you own and the amounts you owe; Measure your progress toward your financial goals; Maintain information on your financial activities; Provide data you can use when preparing tax forms or applying for credit

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14
Q

What are two other names for the balance sheet?

A

net worth statement; statement of financial planning

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15
Q

What are liquid assets? (2)

A

cash; near-cash

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16
Q

What are the two items listed in the “listing items of value” section?

A

assets; liabilities

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17
Q

What is the time frame for current liabilities?

A

<= 1 year

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18
Q

What is the time frame for current liabilities?

A

> 1 year

19
Q

What are two equations relating net worth?

A

net worth = assets - liabilities; assets = net worth + liabilities

20
Q

What is insolvency?

A

inability to pay debts when they are due

21
Q

Define net worth.

A

indication of the financial position at any given date

22
Q

What is the formula for debt ratio?

A

liabilities / net worth

23
Q

Relationship between your debts and net worth

A

indicates financial situation

24
Q

What is better, a higher or lower debt ratio?

A

lower

25
Q

What is the formula for current ratio?

A

current assets / current liabilities

26
Q

The current ratio indicates

A

Indicates how well you will be able to pay upcoming debts

27
Q

What is better, a higher or lower current ratio?

A

higher

28
Q

What is the formula for liquidity ratio?

A

current assets / monthly expenses

29
Q

Define liquidity ratio.

A

Indicates the number of months a person will be able to pay expenses if an emergency situation arises. Again, a higher number is desired especially if uncertainty exists
regarding continual employment.

30
Q

What is the formula for solvency ratio?

A

total assets / total liabilities

31
Q

Define solvency ratio.

A

Shows the relationship between the value of assets and what is owed. A higher number is desired.

32
Q

What is the formula for debt payment ratio?

A

monthly credit payments / monthly take-home pay

33
Q

Define debt payment ratio.

A

Expresses portion of monthly earnings going for credit payments. A lower ratio is desired.

34
Q

What is the formula for savings ratio?

A

amount saved / gross income

35
Q

Define savings ratio.

A

Presents the portion of annual earnings that has been saved.

36
Q

What is the formula for investment assets ratio?

A

investment assets / net worth

37
Q

Define investment assets ratio.

A

Indicates portion of net worth that contributes to long-term financial goals.

38
Q

Define cash flow.

A

actual inflow and outflow for a given time period

39
Q

What is the equation for cash surplus/deficit?

A

total cash received during the time period (minus) cash outflows during the time period

40
Q

What is another name for the cash flow statement?

A

income and expenditure statement

41
Q

What are the three steps in preparing a balance sheet?

A

listing items of value; determining amounts owed; computing net worth

42
Q

What are the three steps in preparing a cash flow statement?

A

record income; record cash outflows; determine net cash flows

43
Q

What is a budget?

A

spending plan that estimates income and expenses

44
Q

What are the four characteristics of a successful budget?

A

well-planned; realistic; flexible; clearly communicated

Finance 3300 (15 decks)

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