Cht BIM 2 Vocab

Financial Plans

describe financial goals and provide the action plans to their achievment

Personal Finance Statements

balance sheets and income and expense states that serve as essential planning tools for developing and monitoring personal financial plans

Balance Sheet

A financial statement that describes a persons financial position at a given point in time

Income and Expense Statement

A financial statement that measures financial performance over time.

Budget

a detailed financial report that looks forward, based on expected income and expenses

Assets

Items that one owns

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

Investments

assests such as stocks, bonds, mutual funds, and real estate that are acquired in order to earn a return rather than provide a service

Real Property

Intangible assets that are immovable: land and anything fixed to it, such as a house.

Personal Property

tangible assets that are movable and used in everyday life

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

Liabilities

debts, such as credit card charges, loans, and mortgages

current (short-term) liabilities

any debt due within 1 year of the date of the balance sheet

open account credit obligations

current liabilities that represent the balances outstanding against established credit lines

long-term liabilities

any debt due one year or more from the date of the balance sheet

Net worth

an individual's or family's actual wealth; determined by subtracting total liabilities from total assets

Equity

the actual ownership interest in a specific asset or group of assets

Insolvency

the financial state in which net worth is less than zero

Cash Basis

a method of preparing financial statements in which only transactions involving actual cash receipts or actual cash outlays are recorded

income

earnings received as wages, salaries, bonuses, commissions, interest and dividends, or proceeds from the sale of assets

Expenses

money spent on living expenses and to pay taxes, purchase assets, or repay debt

Fixed Expenses

contractual, predetermined expenses involving equal payments each period

variable expenses

expenses involving payment amounts that change from one time period to the next

Cash Surplus

an excess amount of income over expenses that results in increased net worth

Cash Deficit

an excess amount of expenses over income, resulting in insufficient funds as well as in decreased net worth

Solvency Ratio

total net worth divided by total assets; measures the degree of exposure to insolvency

Liquidity Ratio

total liquid assets divided by total current debts; measures the ability to pay current debts

Savings ratio

Cash surplus divided by net income (after tax); indicates relative amount of cash surplus achieved during a given period.

Debt Service Ratio

total monthly loan payments divided by monthly gross (before-tax) income; provides a measure of the ability to pay debts promptly

Cash Budget

a budget that takes into account estimated monthly cash receipts and cash expenses for the coming year

budget control schedule

a summary that shows how actual income and expenses compare with the various budget categories and where variances (surpluses or deficits) exist

Budget Variance

the difference between the budgeted amount and the actual amount paid out or recieved

Time Value of Money

the concept that a dollar today is worth more than a dollar received in the future

Future Value

the value to which an amount today will grow if it earns a specific rate of interest over a given period

Compounding

when interest earned each year is left in the account and becomes part of the balance (or principal) on which interest is earned in subsequent years

Annuity

a fixed sum of money that occurs annually

Present Value

the value today of an amount to be received at some date in the future; it's the amount that would have to be invested today at a given interest rate over a specified time period to accumulate the future amount

Discounting

the process of finding present value; the inverse of compounding to find future value

real rate of return

the rate of return earned after adjusting for the effect of inflation; also referred to as the real interest rate