Exam #2 Flashcards
The purpose of a _____________ is to measure the financial position of a business at any time through solvency and liquidity.
Balance Sheet
__________ measures the liabilities of a business relative to the amount of owner equity invested.
Solvency
Provides indication that all debts can be paid if the business sold.
Solvency
If the business is _____________, it is bankrupt.
Insolvent
_____________ measures the ability to meet financial obligations when they come due without disrupting the flow of business.
Liquidity
______ measures the ability to generate cash in the amounts at the time it is needed.
Liquidity
Liquidity/Solvency is a short-run concept.
Liquidity
Liquidity/Solvency is a long-term concept.
Solvency
Can you be liquid, but not solvent?
Yes
Can you be solvent but not liquid?
Yes and no.
________ can be sold to generate cash and used to produce other goods that in turn can be sold for cash in the future.
Assets
Assets that can be used up, sold, or converted to cash in the next year as a normal part of business activities.
Current Assets
The most important liquid of all assets
Current Assets
___________ assets is where revenue is made
Current Assets
___________ assets are light outputs.
Current.
___________ assets are inputs.
Noncurrent
___________ assets are any assets that are not classified as a current asset.
Noncurrent.
Piglets, hay, feed, calves, nails, are __________ assets.
Current
Land, home, and breeding stock are ____________ assets.
Noncurrent
An obligation/debt owed to someone else is a _____________.
Liability
An outsider’s claim against 1 or more of the business’s assets is a ____________.
Liability
Financial obligations that will become due and payable within 1 year from the date of the balance sheet is a ___________ liability
Current
________________ is a short-term issue.
Current liability
All obligations that do not have to be paid in full within the next year are __________ liabilities.
Noncurrent
Liability that is typically a debt due in 1-10 years is an ____________ liability.
Intermediate
A debt due in 10+ years is a ________________ liability
Long-term.
_____________ represents the amount of money left for the owner of the business should that asset be sold and all liabilities paid as of the date of the balance sheet.
Owner Equity
_____________ = Net Worth
Owner Equity
Owner Equity is also known as: ___________
net worth
T/F - Owner equity can change due to profit or loss.
True
T/F - Owner equity can be changed using assets to produce crops and livestock?
True
Changes in the composition of assets and liabilities always cause a change in owner equity
False
_________ sets inventory and is valued to current market price.
Market Value
Valued at original cost.
Cost
__________ is valued at both cost and market value.
Lower of Cost or Market
Purpose of a ______________ is to obtain measures of the financial position and strengths of the business: liquidty, solvency, and other financial performance.
Balance Sheet
T/F - Liquidity is usually measured over the next accounting periods.
True
T/F - Liquidity concentrates on noncurrent assets and noncurrent liabilities.
False
T/F - Liquidity concentrates on current assets and current liabilities.
True
________________ = Current Asset Value / Current Liability Value
Current Ratio
T/F - With Current Ratio, a value less than one is ideal.
False
T/F - In Current Ratio, a value greater than 1 is ideal.
True
__________ measures liquidity using a dollar ($) amount.
Working Capital
___________ = Current Assets - Current Liabilities
Working Capital
Working Capital = ____________ - __________
Current Assets - Current Liabilities