FIN 2081 Chapter Notes - Chapter 2: Cash Flow Statement, Savings Account, Financial Statement

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15 May 2018
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Chapter 2 - Money Management Skills
A System for Personal Financial Records
Money Management - day-to-day financial acitivities necessary to manage current personal economic resources while
working toward long-term financial security.
An organise system of financial records provides a basis for:
Handling daily business activities
Planning and measuring financial progress
Completing required tax reports
Making effective investment decisions
Determining available resources for current and future spending
Personal Financial Statements
Personal Financial Statements - tell you the starting point of your financial journey.
Personal Balance Sheet
Cash Flow Statement
Main purpose of these statements are:
Report your current financial position
Measure your progress toward financial goals
Maintain information about your financial acitivites
Provide data for preparing tax forms or applying for credit.
Personal Balance Sheet
Financial statement that reports what an individual or a family owns and owes, also called a
Net worth statement
Statement of financial position
Current Financial Position:
Items of values (what you own) - amounts owed (what you owe) = net worth.
Liquid Assets - cash and items of value that can easily be converted to cash.
Money in checking and saving accounts is liquid and is available for the current spending.
Current Liabilities - debts that must be paid within a short time, usually less than a year.
Eg. medical bills, tax payments, isnsurance, cahs loans, charge accounts.
Long-term liabilities - debts that are not required to be paid in full until more than a year from now.
Eg. auto loans, educational loans, mortgages.
Net worth - the difference between total assets and total liabilities.
Financial ratios provide guidelines for measuring the changes in your financial situation.
These relationships can indicate progrss toward an improved financial position.
Insolvency - is the inability to pay debts when they are due;
Occurs when a person's liabilities far exceed available assets.
Individuals can increase their net worth:
Increase their savings
Reduce spending
Increase the value of investments and other possessions
Reduce amounts owed
Take-home money (net pay) - is a person's earnings after deduction for taxes and other items.
Discretionary income - money left over after paying for housing, food, and other necessities.
Cash outflows main categories:
Fixed expenses are payments that do not vary from month to month.
Eg. rent, mortgage, loan, cable/internet.
Variable Expenses are flexible payments that change from month to month.
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Document Summary

Money management - day-to-day nancial acitivities necessary to manage current personal economic resources while working toward long-term nancial security. An organise system of nancial records provides a basis for: Determining available resources for current and future spending. Personal financial statements - tell you the starting point of your nancial journey. Provide data for preparing tax forms or applying for credit. Financial statement that reports what an individual or a family owns and owes, also called a. Items of values (what you own) - amounts owed (what you owe) = net worth. Liquid assets - cash and items of value that can easily be converted to cash. Money in checking and saving accounts is liquid and is available for the current spending. Current liabilities - debts that must be paid within a short time, usually less than a year. Eg. medical bills, tax payments, isnsurance, cahs loans, charge accounts.

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