Chapter 2 using Financial Statements and Budgets Flashcards
(36 cards)
Annuity
A fixed sum of money that occurs annually.
Assets
Items that one owns.
Balance Sheet
A financial statement that describes a person’s financial position at a given points in time.
Budget Control Schedule
A summary that shows how actual income and expenses compare with the various budget categories and where variances (surpluses and deficits) exist.
Budgets
A detailed financial report that looks forward, based on expected income and expenses.
Cash basis
A method of preparing financial statements in which only transaction involving actual cash receipts or actual cash outlays are recorded.
Cash Budget
A budget that takes into account estimated monthly cash receipts and cash expenses for the coming years.
Cash deficit
An excess amount of expenses over income resulting in sufficient funds as well as in decreased net worth.
Cash Surplus
An excess amount of income over expenses that results in increased net worth.
Compounding
when interest earned each year is left in the account and becomes part of the balance on which interest is earned in subsequent years.
Current or short-term liabilities
Any debt due within 1 year of the date of the balance sheet.
Debt service ratio
Total monthly loan payments divided by monthly gross(before-tax) income; provides a measure of the ability to pay debt promptly.
Discounting
The Process of finding present value; the inverse of compounding to find future value.
Equity
The actual ownership interest in a specific asset or group assets.
Expenses
Money spent on living expenses and to pay taxes, purchase assets, or repay debt.
Fair market value
The actual value of an asset or the price for which it can reasonably be expected to sell in the open market.
Fixed Expenses
Contractual, predetermined expenses involving equal payments each period.
Future Value
The value to which an amount today will grow if it earns an specific rate of interest over a given period.
Income
Earnings receives as wages, salaries, bonuses, commissions, interest and dividends, or proceeds from the sale of assets.
Income and expense statement
A financial statement that measures financial performance over time.
Insolvency
The financial state in which net worth is less than zero.
Investments
Assets such as stocks, bonds, mutual funds, and real estate that are acquired in order to earn a return rather than provide a service.
Liabilities
Debts, such as credit cards charges, loans and mortgages.
Liquid Assets
Assets that are held in the form of cash or can readily be converted to cash with little or no loss in value.
