ANSWERS TO CONCEPT CHECKS, FINANCIAL PLANNING PROBLEMS | |
|AND QUESTIONS, AND CASES |
CONCEPT CHECK ANSWERS
Concept Check 2-1 (p. 38)
1. What are the three major money management activities?
The three major money management activities are (1) storing and maintaining financial records and documents, (2) creating personal financial statements, and (3) creating and implementing a budget. (p. 36)
2. What are the benefits of an organized system of financial records and documents?
An organized system of financial records provides a basis for: (1) handling daily business activities, such as bill paying; (2) planning and measuring financial progress; (3) completing required tax reports;
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The Nollin family has budgeted expenses for a month of $4,560 and actual spending of $4,480.
This would result in a budget SURPLUS or DEFICIT (circle one) of $ 80
Concept Check 2-4 (pp. 52-53)
1. What relationship exists among personal financial statements, budgeting, and achieving financial goals?
The balance sheet and cash flow statement provide information about a person’s current financial situation. These allow a person to plan his or her budget to set spending and saving plans that relate to achieving financial goals.
2. What are some suggested methods to make saving easy?
Suggested savings methods include “pay yourself first,” payroll deduction, saving coins, and eliminating spending on a certain item. (p. 52)
3. If a person desires to obtain the following information, check the box for the document that would be most useful.
|Financial information needed |Balance sheet |Cash flow statement |Budget |
|Amounts owed for medical expenses |X | | |
|Spending patterns for the past few months | |X | |
|Planned spending patterns
A balance sheet is a statement of the assets and liabilities of a business going into depth of what the balance of income period.
The balance sheet is one of four types of financial statements that are analyzed to determine the well being of the firm. The balance sheet is also known as the Statement of Financial Position. The balance sheet provides the detailed information needed to determine the financial condition of the firm on a specific date, which is usually December 31. The balance sheet depicts what the firm owns (assets), owes (liabilities), and how much capital (shareholders’ equity) it has. “The name, balance sheet, is derived from the fact that these accounts must always be in balance. Assets
A balance sheet gives an overall picture of a company's financial situation by showing the total assets of a business, including liabilities plus equity. Current assets can include cash, accounts receivable, inventory and prepayments for insurance. The balance sheet is used by investors to get an idea of what the shareholders have invested, including
When you’re looking at the income statement, you can get information about profitability for a particular period. This is also called the profit and loss statement. The income statement is composed of both income and expenses. This statement can be used to deduct expenses from income and report either a net profit or net loss for that period. This statement will deduct all expenses from income and then report your net profit or net loss for that period. This will allow the business owner to determine if the business is bringing in a good amount of revenue to make a profit. The cash flow statement shows the movement in cash and balance over period. The cash flow can vary depending on the operating activities, investing and financing activities. This statement provides one business owner with insight to the company’s liquidity which is vital to the growth of the business. Reinvesting in business is very important, looking at the statement of retained earnings will tell a business owner how much were reinvested in the company. After profitable period, every big business has to give some of its profits to stockholders, and keep the rest amount as retained earnings. Out of all statements, retaining statement is important to companies that sells stocks to the public. This statement can also provide you with assets and liabilities information. These informations can be used to assess the financial health of your business. The results of a balance sheet will help the business owners to show the risk of liquidity and credit. Looking at these information you can measure trends and relationships to show where in the areas you can improve. These can also be compared to similar companies to show how the business measures up to leading competitors (Ali, 2010). In summary, the financial statements can provide a business owner
Understanding the finances of a company is important but knowing the significance of the financial statements is crucial to the operations as well. Reviewing the statement of financial position, operating statement and statement of cash flows serve as a guidance to management and executives on the day-to-day activities of an organization (Finkler et al., 2013). For example, the statement of financial position (balance sheet) shows the assets and
“Keep a record of your expenditures. Record and review monthly income and expenses. Determine how to reduce what you spend for nonessentials….discipline yourself to live within your budget plan.”
The cash flow statement of a company showcases how much money coming in to the business and out of business. A positive cash flow indicates a health business where more money coming in to business than going out of the business. There are three major component of cash flow statement which are operations, investing and financing activities. The balance sheet represents the financial position of the company for a specific date and provide company asset, liabilities and owner equity. The Income statement demonstrates how a company use its assets to generate income over a period of time. It explains the how the company generate revenue and what are their
The Balance Sheet is another type of financial statement used by a company to see a snapshot of the company's financial position at a particular point in time. It lists the value of the company's assets followed by its liabilities. A balance sheet can be summed up by a simple equation:
The balance sheet is one of the major and critical financial statements that show the financial position of the company. The balance sheets tell the user of the
Balance Sheet reports the financial position (economic resources and sources of financing) of an accounting entity at a point in time.
Explain the nature of balance sheets. A balance sheet is one of the major financial statements that a company prepares so that its investors and managers have visibility into the company’s financial position. The balance sheet details a company's resources and obligations. The major parts include assets, liabilities and shareholders' or owners’ equity. The balance sheet is run for
A Balance Sheet is a snapshot of an organization’s assets, liabilities, and owners’ equity at any given time. It allows the stakeholder’s to see the company's financial condition, as well as, presenting what is owned and owed. Assets are the things that are owned, and are referred to as capital. Liabilities are the amounts owed to others. In order to get an accurate picture, one must look at the whole document, and make comparisons amongst different line items.
The balance sheet is a key component in the accounting department of financial statements. The purpose it serves is to show on a specific date the amount of assets, liabilities,
It is important to understand that any business needs from an income statement and a cash flow statement to succeed and there are many reasons behind it. According to Southern New Hampshire University (2015), “Cash flow is the lifeblood of any business…it can reveal important clues about a company’s financial health that are not as readily apparent on the balance sheet or income statement. (p. 1)
The Statement of Cash flows is a very useful financial statement that can benefit investors, managers and even auditors. The statement of cash flows has not been around as long as the other financial statements such as the balance sheet or income statement. It basically “illustrates the way accounting evolves to meet the requirements of users of financial statements.” (Marshall, 2003) The statement of cash flows is designed to provide important information about the cash that a company has received or has paid out during a certain time period. It provides a reason for the changes of cash received and paid by a company by taking into