Financial Planning: Balance Sheet and Liabilities Review

A set of vocabulary flashcards covering the components of the balance sheet, asset categorization, liabilities valuation, and course materials.

Balance sheet

A financial document dated as of a specific date that provides a snapshot of a client's financial situation, detailing how assets are financed through debt and equity.

Net worth

The core figure on a balance sheet calculated as assets minus liabilities ($\text{Assets} - \text{Liabilities} = \text{Net Worth}$), which captures the overall relationship between what is owned and what is owed.

Order of maturity

The sequencing rule used on a balance sheet to arrange assets (cash and cash equivalents, investment assets, then personal use assets) and liabilities (current liabilities followed by long term liabilities).

Cash and cash equivalents

Assets listed first on the balance sheet that can be most rapidly liquidated into cash, such as checking accounts, savings accounts, short term CDs, and money market type securities.

Investment assets

Longer term assets placed after cash equivalents on the balance sheet that an individual holds with the intention of growing them.

Personal use assets

Assets listed last under the assets section in order of maturity, consisting of personal property such as boats, homes, and cars.

Fair market value

The price an asset would sell for when a willing buyer and a willing seller freely agree to transact without either party being forced to participate.

Current liabilities

Debts and obligations listed first under liabilities on the balance sheet that are due within the next $12$ months.

Long term liabilities

Obligations listed on the balance sheet that are due beyond $12$ months.

Principal value

The actual balance of a debt owed today that would be required to pay it off immediately, recorded on the balance sheet without including future interest obligations.

Footnotes

Detailed disclosures accompanying financial statements that planners must carefully review for crucial information tested by the board.