unit 1 (ch 6 and 4) Flashcards
what are the 3 parts of a statement of financial position
assets, liabilities, net worth
what are the classifications/categories of assets
cash and cash equivalents, investment assets, personal use assets
what is a cash and cash equivalent (assets classification)
liquid (easily converted to cash), convert to cash within a YEAR
what is an investment asset (assets classification)
money is held for growth or income (ex. retirement)
what is a personal use assets (assets classification)
long lived assets, used to maintain quality of life (ex. house or furniture)
what are the 2 liability categories and classifications
current liabilities, long term liabilities
what is a current liability (liability classification)
paid within one YEAR (ex. credit card debt, unpaid bills)
what is a long term liability (liability classification)
extended beyond one year (ex. debts, larget assets)
what is included in a financial statement
total assets that will equal total liabilities and net worth, assets stated at fair market value
what is included in a statement of cash flows
summary of clients expenses over time (typically a year), can focus on realized transactions
what are examples of inflows
employment income, investment income, other income (ex. gift)
what are examples of outflows
fixed expenses (ex. mortgage), variable expenses (can somewhat plan for, ex. heating), discretionary expenses (you can choose whether or not you want to pay for it)
what are savings subtracted from
inflows
what is the purpose of a statement of changes in net worth
why did it change?
a list of assets, liabilities, and net worth
statement of financial position textbook definition
property owned completely or partially by the client
assets textbook definition
the ability to buy or sell an asset quickly and at a known price
liquidity text def
assets expected to be converted to cash within one year
current assets text def
money owed by the client
liability text def
the amount of wealth or equity the client has in owned assets
net worth text def
the price at which an exchange will take place between a willing buyer and a willing seller, both informed and neither under duress to exchange
fair market value text def
summary of the clients income and expenses during an interval of time, usually one year
personal statement of cash flows td
money available after all expenses are accounted for
net cash flow td
all monies received from employment, investments, and other sources
inflows
deffered consumption
savings
recurring obligations, or monthly expenses paid
outflows
outflows that remain constant over a period of time and over which the client has little control
fixed outflows/expenses
the relationship or relative value of two characteristics used to analyze an individuals financial health and to conduct comparison and trend analysis
ratio analysis
the future dollar amount to which a sum certain today will increase compounded at a defined interest rate over a period of time
future value
the current dollar value of a future sum discounted at a defined interest rate over a period of time
present value
a series of deposits or payments of equal size deposited over a finite number of equal interval periods
annuity
deposits or payments are made at the END of each period
ordinary annuity
deposits or payments are made at the BEGINNING of each period
annuity due
the future amount to which a series of deposits of equal size will equal when deposited over a finite number of equal interval periods paded on a defined interest rate when the deposits are made at the end of each period
future value of an ordinary annuity
the future value to which a series of deposits of equal size will amount when deposited over a definite number of equal interval periods based on a defined interest rate and the deposits are made at the beginning of each period
future value of an annuity due
the difference between the initial cash outflow and the present value of discounted cash inflows cost of investment
net present value
the discount rate that causes cash inflows to equal cash outflows, thus allowing comparison of rates of return on alternative investments
internal rate of return
