Unit 1: Financial Statements

Question 1

Summarizes financial condition of business at a point in time

Answer 1

Balance Sheet/Net Worth Statement

Question 2

Summarizes financial transactions over a period of time.

Answer 2

Income Statement

Question 3

Anything of value

Answer 3

Asset

Question 4

Any debt or financial obligation

Answer 4

Any debt or financial obligation

Question 5

Total Assets - Total Liabilities = ________

Answer 5

Owner Equity

Question 6

Measure liabilities of business relative to amount of owner equity invested. Shows the ability to pay off all liabilities if all assets were sold→ The measure to the degree to which assets are greater than liabilities

Answer 6

Solvency

Question 7

measures ability of business to meet financial obligations as they come without disruption of normal operation of business, short-run concept.

Answer 7

Liquidity

Question 8

A characteristic of something being not able to be transformed to cash easily

Answer 8

Illiquid

Question 9

Items that can be sold without disrupting future production activities

Answer 9

Liquid Assets

Question 10

Must be separated from other assets on a balance sheet

Answer 10

Current Assets

Question 11

Any asset that is NOT current

Answer 11

Noncurrent Assets

Question 12

Must be separated from all other liabilities for the balance sheet to follow basic accounting principles.

Answer 12

Current Liabilities

Question 13

All obligations that do NOT have to paid in full within the next year

Answer 13

Noncurrent Liabilities

Question 14

Represents the amount of money left for the owner of the business if the assets were sold and all liabilities paid as of that date. The current investment or equity in business

Answer 14

Owner Equity

Question 15

Less liquid than current assets, with a life between 1-10 years. Machinery, equipment, perennial crops, and breeding livestock

Answer 15

Intermediate Assets

Question 16

Least liquid, greater life than 10 year: land and buildings

Answer 16

Fixed Assets

Question 17

Debt obligations where repayment of principal occurs over a period of more than 1 year and up to 10.

Answer 17

Intermediate Liabilities

Question 18

Repayment period is 10+ years

Answer 18

Long Term Liabilities

Question 19

Value of asset based on current market price

Answer 19

Market Value

Question 20

Items that have been PURCHASED can be valued at their original cost of purchasing

Answer 20

Cost Value

Question 21

Equal to the accumulated costs of producing the item but should NOT include profits or opportunity costs associated with production

Answer 21

Farm Production Cost

Question 22

A method of accounting for the loss in value of certain durable assets over their expected years of use in business

Answer 22

Cost-less-accumulated depreciation

Question 23

Items valued at the lower of the cost or market method

Answer 23

Lower of Cost or Market Value

Question 24

cautions against placing too high a value on any asset

Answer 24

Conservatism

Question 25

stresses using the same methods over time, allows you to compare

Answer 25

Consistency

Question 26

Values assets using the cost, cost-less depreciation, or farm production cost methods

Answer 26

Cost Basis

Question 27

Valued at market value less estimated selling costs.

Answer 27

Market Basis

Question 28

Contributed Capital, Retained Earnings, Valuation

Answer 28

The 3 sources of owner equity

Question 29

This is the value of any personal cash or property the owner used to start the business and any that might have been contributed since that time

Answer 29

Contributed capital

Question 30

Any before-tax net farm income not used for family living, income taxes, or withdrawals for other purposes of business remain in the business.

Answer 30

Retained Earnings

Question 31

The ratio measures the amount of current assets relative to current liabilitie

Answer 31

Current Ratio

Question 32

The difference between current assets and current liabilities Indicates margin of safety for liquidity measured in dollars

Answer 32

Working Capital

Question 33

Measures what part of total assets is owed to lenders

Answer 33

Debt/Asset Ratio

Question 34

Measures what part of total assets is financed by the owner’s equity capital.

Answer 34

Equity/Asset Ratio

Question 35

A ratio that compares the proportion of financing provided by lenders with that provided by the business owner

Answer 35

Debt/Equity Ratio