Assets
What happens to your net worth when the value of your assets increases?
Your net worth increases
How do liabilities affect your net worth?
They reduce it
What is the difference between income and expenses?
Income is money coming in; expenses are money going out
Which financial statement shows what you own and what you owe at one point in time?
The net worth statement
How do you calculate net worth?
What is assets minus liabilities?
Name two examples of highly liquid assets.
What are cash and savings accounts?
What impact do high liabilities have on your net worth?
They decrease your net worth - limit financial flexibility and increase risk
What do we call the costs associated with living, like rent and groceries?
What are expenses?
Which financial statement summarizes your income and expenses over a period of time?
Income statement
If your assets total $50,000 and your liabilities total $20,000, what is your net worth?
What is $30,000?
Name two examples of low liquid assets that are often difficult to convert into cash quickly.
Real estate, cars, property, collectibles (e.g., jewelry, antiques)
When are most liabilities, such as loans and mortgages, typically paid—now or in the future?
What is in the future?
If your income is greater than your expenses, what type of cash flow do you have?
What is a positive cash flow?
This term refers to the total revenue a company earns before any expenses are deducted.
What is gross income?
When recording assets on a net worth statement, should you list them by their original purchase price or their current market value?
What is their current market value?
Why might the market value of an asset (like a home) be different from its purchase price?
Market conditions, depreciation/appreciation, supply and demand
Why might someone choose to take on debt, even though it reduces their net worth?
Debt can help achieve goals (buying a house, education, starting a business) that may increase wealth or opportunities in the future.
What is it called when your expenses exceed your income?
What is negative cash flow?
What is the main purpose of a cash flow statement?
To show the inflows and outflows of cash over a period, tracking liquidity
If someone’s net worth is negative, what does that indicate about their financial situation?
Their liabilities are greater than their assets; they owe more than they own