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Finance Flashcards

Personal Finance – Chapter 2

Personal Balance Sheet A statement of your financial position on a given date. It includes the assets you own, the debt or liabilities you have incurred, and your level of wealth, which is referred to as net worth.
Assets What you own.
Liabilities Something that is owed or the borrowing of money.
Net Worth of Equity A measure of the level of your wealth. It is determine by subtracting the level of your debt or borrowing from the value of your assets.
Fair Market Value What an asset could be sold for rather than what it cost or what it will be worth sometime in the future.
Tangible Asset A physical asset, such as a house or a car, as opposed to an investment.
Blue Book A listing of used-car prices, giving the average price a particular year and model sells for and what you might expect to receive for it as a trade-in.
Insolvent The condition in which you owe more money than your assets are worth.
Income Statement A statement that tells you where your money has come from and where it has gone over some period of time.
Variable Expenditure An expenditure over which you have control. That is, you are not obligated to make that expenditure, and it may very from month to month.
Fixed Expenditure An expenditure over which you have no control. You are obligated to make this expenditure, and it is generally at a constant level each month.
Budget A plan for controlling cash inflows and cash outflows. Based on your goals and financial obligations, a budget limits spending in different categories.
Current Ratio A ratio aimed at determining if you have adequate liquidity to meet emergencies, defined as monetary assets divided by current liabilities.
Month’s Living Expenses Covered Ratio A ratio aimed at determining if you have adequate liquidity to meet emergencies, defined as monetary assets divided by annual living expenditures divided by 12.
Debt Ratio A ratio aimed at determining if you have the ability to meet your debt obligations, defined as total debt or liabilities divided by total assets.
Long-Term Debt Coverage Ratio A ratio aimed at determining if you have the ability to meet your debt obligations, defined as total income available to living expenses divided by total long-term debt payments.
Savings Ratio A ratio aimed at determining how much you are saving, defined as income available for saving and investments divided by income available for living expenditure.
Ledger A book or notebook set aside to record expenditures.

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