Personal Financial Statements Quiz

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Questions and Answers

Match the following financial planning tools with their descriptions:

Personal balance sheet = Statement of financial position at a point in time Personal income and expense statement = Detailed financial report that looks forward based on expected income and expenses Cash budget = Serve as planning tools that are essential to develop and monitor personal financial plans Record-keeping system = Maintain a good recordkeeping system to track financial progress

Match the following terms with their descriptions:

Assets = Listed at fair market value for the balance sheet preparation. Liabilities = Consist of current and long-term debts. Net worth = The difference between assets and liabilities, and is a measure of an individual's financial worth. Liquidity ratios = Measure the ability to pay off current debts and should be greater than one to maintain adequate liquidity.

Match the following components with their categories in personal financial statements:

Liquid assets, investments, and lifestyle assets = Assets Current and non-current liabilities, such as loans and mortgage balances = Liabilities A person should maintain adequate liquidity, sometimes recommended to be equal to 3-6 months of take-home pay or 25-50% of take-home pay in liquid assets, for making short-term payments. = Liquidity ratios It is important to avoid having a high level of debt, and the debt ratio can be used to measure the amount of debt relative to assets. = Financial ratios

Match the following recommendations with their related financial planning aspect:

Maintain adequate liquidity, sometimes recommended to be equal to 3-6 months of take-home pay or 25-50% of take-home pay in liquid assets, for making short-term payments. = Reserve funds It is important to avoid having a high level of debt, and the debt ratio can be used to measure the amount of debt relative to assets. = Insurance needs The income statement is important for understanding a person's financial position and for budgeting purposes. = Budgeting purposes Financial ratios can be calculated from personal financial statements to evaluate financial strength and weaknesses. = Retirement funds Signup and view all the answers

Match the financial ratio with its description:

Total Liabilities to Total Assets ratio = Indicates the ability to pay debts. Adequate ratio is below 40%. Debt Service Coverage Ratio = Indicates the ability to make debt payments. Higher ratio is better. Solvency Ratio = Measure of ability to pay off existing debts using assets. Ratio of 50 or higher is better. Savings Ratio = Indicates the relative amount of cash surplus achieved during a given period. Cash Surplus = The difference between income and expenses. Inflation Rate = Key economic indicator that affects financial planning, particularly for retirement. Personal Budgeting = A plan for financial goals and resources. Divided into fixed and variable expenses. Cash Budget = Budgeting tool for monitoring and controlling finances. Helps achieve short-term goals. Dealing with Deficits = Options to cover deficits when income falls short of expenses. Past Examination Questions = Sample questions from previous examinations for reference, including dates and question topics. Signup and view all the answers

Match the following financial terms with their definitions:

Liabilities = Financial obligations or debts that a company owes to others. Assets = Economic resources owned by an individual or organization. Debt Repayment = The act of paying back money previously borrowed from a lender. Cash Flow = The net amount of cash and cash-equivalents being transferred into and out of a business. Retirement Planning = The process of determining retirement income goals and the actions necessary to achieve those goals. Fixed Expenses = Expenses that do not change, such as mortgage payments or loan payments. Variable Expenses = Expenses that can be controlled, like groceries or entertainment. Deficit = The amount by which something, especially a sum of money, is too small. Inflation = The rate at which the general level of prices for goods and services is rising. Budgeting = The process of creating a plan to spend money based on income and expenses. Signup and view all the answers

Match the following financial strategies with their descriptions:

Debt Consolidation = Combining multiple debts into a single, larger debt with more favorable payoff terms. Diversification = Spreading investments among different types of assets to reduce risk. Emergency Fund = A reserve of money set aside for unforeseen expenses or financial emergencies. 529 Plan = A tax-advantaged savings plan designed to encourage saving for future education costs. Signup and view all the answers

Study Notes

Total Liabilities to Total Assets ratio: The lower the ratio, the better, indicating the ability to pay debts. Adequate ratio is below 40%. A ratio above 40% indicates inability to pay debts.
Debt Service Coverage Ratio: The higher the ratio, the better, indicating the ability to make debt payments. For example, an individual earning RM3.50 in take-home pay for every RM1 of required debt repayment and interest.
Solvency Ratio: A measure of an individual's ability to pay off their existing debts using their assets in case of unforeseen events. A higher ratio indicates greater solvency. Normally, a ratio of 50 or higher is better.
Savings Ratio: Indicates the relative amount of cash surplus achieved during a given period. A higher savings ratio translates to better money management skills.
Cash Surplus: The difference between income and expenses.
Inflation Rate: A key economic indicator that affects financial planning, particularly for retirement. Maintaining the desired lifestyle during retirement depends on how much has been accumulated and how fast it is spent.
Personal Budgeting: A plan for financial goals and resources. Divided into fixed and variable expenses. Fixed expenses are those that do not change, such as mortgage payments or loan payments. Variable expenses are those that can be controlled, like groceries or entertainment.
Cash Budget: A budgeting tool for monitoring and controlling finances. It helps achieve short-term goals and maintain disciplined spending.
Dealing with Deficits: When income falls short of expenses, options to cover deficits include shifting expenses to months with surpluses, using savings, investments, or borrowing, cutting low-priority expenses, altering spending habits, or increasing income.
Past Examination Questions: Sample questions from previous examinations for reference, including dates and question topics.

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Description

Test your knowledge on preparing personal financial statements, understanding the relationship between financial plans and statements, creating a cash budget, and using ratios to evaluate personal financial statements.