Key Terms
What is a budget?
A plan for managing income and expenses over a period of time.
What is the accounting equation?
Assets = Liabilities + Owner’s Equity
What is a financial statement?
A document that shows a company’s financial health.
What is an investment?
Money put into a business or asset with the expectation of making a profit.
What does a company’s revenue tell us?
The total income a company earns before expenses.
What does an asset represent in business?
Anything of value that a business owns.
If a business has $50,000 in assets and $30,000 in liabilities, how much is the owner’s equity?
$20,000
What are the three main financial reports a company uses?
Balance Sheet, Income Statement, and Cash Flow Statement.
What are stocks?
Shares of ownership in a company.
What is profit margin?
A measure of how much profit a company makes for every dollar of revenue.
What is a liability?
A financial obligation or debt that a company owes.
What happens to the accounting equation if a company borrows $10,000 from the bank?
Assets increase by $10,000, Liabilities increase by $10,000.
What does an income statement show?
Revenue, expenses, and profit or loss over a period of time.
What is the difference between a stock and a bond?
A stock is ownership, while a bond is a loan to a company or government.
What is return on investment (ROI)?
A metric showing how profitable an investment is.
What is capital?
Money or assets used to start or invest in a business.
If a business pays off a $5,000 loan, how does it affect the equation?
Assets decrease by $5,000, Liabilities decrease by $5,000.
What does a balance sheet show?
A company’s assets, liabilities, and owner’s equity at a specific point in time.
What does it mean to diversify your investments?
Spreading money across different assets to reduce risk.
How can a business tell if it is financially stable?
By analyzing financial reports, tracking profits, and managing cash flow.
What is owner’s equity?
The owner’s share of the company’s total assets after liabilities are deducted.
Why must the accounting equation always stay balanced?
Because every financial transaction affects at least two accounts, ensuring accuracy.
How does the cash flow statement help a business?
It tracks cash moving in and out, helping businesses manage liquidity.
What are dividends?
Payments made to stockholders from a company’s profits.
What financial ratios help evaluate a company’s health?
Liquidity ratio, debt-to-equity ratio, and profit margin.