Personal and Business Financial Statements Flashcards
The balance sheet determines your financial position _______ , usually at the end of the year. It shows your ____, _____, and ____.
at a particular point in time
assets, liabilities and equity
_____ is defined as the ability to quickly and easily convert the value of the asset to cash without a price concession.
Liquidity
What are the 3 types of assets?
Cash and Cash Equivalents
Investment Assets
Personal Use Assets
Assets on the balance sheet must be listed at ____
Fair Market Value (FMV)
______ is considered to be the price at which a well-informed seller will sell to a well-informed buyer when neither is compelled to buy or sell.
Fair market value
Current liability: a debt that must be paid within ____.
one year
Types of Current Liabilities:
Unpaid Bills
Portions of installment loans that are due within one year.
3 types of long-term liabilities:
Long-term portion of loans with specific repayment schedules.
Long-term liability portions of revolving debt.
Long-term liability portions of loans that do not have repayment schedules.
Net Worth=
Assets-Liabilities
Net worth can be changed in 4 ways:
Positive or negative contribution to savings.
Increase or decrease to assets.
Reduction or increase in debt.
Increase or decrease in market value of assets
Cash outflows to increase savings will/will not result in increased net worth, as cash is reduced equal to the contribution amount made to savings.
will not
The ____ statement shows your income, expenses, and contribution to savings over a past period of time, usually the preceding year.
cash flow
______ - ____ = Discretionary Cash Flow
Income - Expenses = Discretionary Cash Flow
_____ usually consist of income items such as wages, salary, bonuses, tips, royalties and commissions in addition to any other sources of income you may have.
Inflows
Reinvested Dividend and Interest Income would be considered an ___ , since dividends and interest are generated from your investments, and it is also a savings ____, even if you do not actually pull the money out of the account, since that money is reinvested.
inflow
outflow
Inflows are____
Income
Outfows are___
Expenses
2 types of Expenses:
Fixed Expenses
Variable
Assets = Liabilities + Shareholders’ Equity
Balance Sheet
______ lists all assets and liabilities to show what the company owns and what liabilities are owed, and reports shareholder’s equity ownership in the company at a given time.
The Balance Statement
____ are reported at cost less accumulated depreciation
Fixed assets
A _____ is when the actual amount for a line item differs from the budgeted figure
Variance
____ track values over a period of time.
Statement of Cash Flows
___________________ is the result of subtracting operating expenses from the gross margin amount.
Income from Operations
The components and materials used to make a product, partially completed manufactured products, and the finished product or service that is available for sale are known as ________________.
Inventory
_____ is a report that shows the revenue a company earned or the financial losses it incurred over the past year, and the operational costs that were associated with this profit or loss revenue stream.
The Income Statement
_____ is a report that shows the inflows and outflows of cash over the reporting period, to determine if cash is sufficient to finance operating expenses and debt obligations.
The Cash Flow Statement
____ is used for future businesses purposes since it projects the future rather than tracks the past. A pro forma cash flow statement is created from the current year’s income statement
Pro Forma Statement
What ratios are used to determine your liquidity?
Current Ratio
Living Expense Ratio
Liquid Assets to Home Pay Ratio
Annual Budget uses….
master budget worksheet and a monthly income and expense plan.
Current Ratio
= Current (liquid) Assets ÷ Current Liabilities
The recommended target for this ratio is between 1.0 to
Living Expense Ratio
= Current Assets ÷ Monthly Living (non-discretionary) Expenses
illustrates the client’s ability to withstand and weather a financial hardship.
Liquid Assets to Home Pay Ratio
Liquid Assets/Take home=
.3-.6 is adequate
What to analyze to determine your financial health
Liquidity
Debt Obligations
Savings
Debt Ratios
Debt to Asset Ratio
Long Term Debt Coverage ratio
_____ deals with the percentage of your assets that have been financed by borrowing.
Debt to asset ratio
= Total debt or liabilities ÷ Total assets
Debt to asset ratio
____ relates the amount of funds available for debt repayment to the size of the debt payments. In effect, this ratio is the number of times you could make your debt payments with your current income.
Long Term Debt coverage ratio-
Long-term Debt Coverage Ratio =
=Total income available for living expenses ÷ Total long-term debt payments
If the long-term debt ratio is below a ____, that should raise a caution flag.
2.5
The Savings Ratio
is the ratio of income available for savings and investment compared to the annual gross income. This ratio tells you what proportion of your gross income is being saved. The annual savings include employer retirement plans and all other savings.
Savings Ratio =
= Annual Savings ÷ Annual Gross Income
The target for the savings ratio is generally 10%
____ can be assessed by comparing your cash and other liquid assets with your current debt.
Adequate Liquidity
Components of a Balance Sheet
Current Assets
Fixed Assets
Other Assets
Current Liabilities
Long-term Liabilities
Current Assets in a Balance Sheet
Cash and cash equivalents
Marketable securities
Accounts receivable – less provision for bad debts
Inventories
Prepaid expenses and taxes
Fixed Assets in a Balance Sheet
Property, plant and equipment – less accumulated depreciation
Other Assets in a Balance Sheet
Deferred charges
Intangibles – less accumulated amortization
Investment securities
____ are short-term liabilities incurred by the company that are expected to be paid within the year from the company’s current assets.
Current Liabilities
Current Liabilities:
Accounts payable
Notes payable
Accrued expenses
Income taxes payable
Other liabilities
Current portion of long-term debt
Long-term Liabilities:
Deferred income taxes
Other long-term debt
______ Represents the amount that shareholders have invested in the company’s stock, plus or minus the company’s earnings or losses since inception.
Shareholders’ Equity
_____ is a report that shows how much revenue a company earned or lost over the past year, and the operational costs associated with earning that revenue.
The Income Statement
Components of an Income Statement
Gross sales
Cost of sales
Gross margin
Operating expenses
Income from operations
Dividend and interest income
Net income
Earnings per share
____ is the resulting profit or loss the company made at the end of the year.
Net income
Earnings per share is calculated by ….
dividing the net income by the number of shares of common stock outstanding.
_______ are created by taking information from the company’s Balance Sheet and Income Statements to produce a report that shows the inflows and outflows of cash over the accounting period.
Statements of Cash Flows
Pro forma cash flow statements are used for businesses and are similar to historical cash flow statements, except that they project ____ rather than track the past.
the future
