Week 1 | Personal Finance Basics
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Week 1 | Personal Finance Basics

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Questions and Answers

Which of the following is NOT one of the five key areas of personal finance?

  • Income
  • Spending
  • Borrowing (correct)
  • Investing

    • Setting specific financial goals is considered a top personal financial habit.

    True

    Name one common money mistake to avoid.

    Failing to plan

    The _____-based budget ensures that income minus expenses equals zero.

    <p>zero</p> Signup and view all the answers

    Match the budgeting methods with their descriptions:

    <p>Zero-based budget = Income minus expenses equals zero Pay-yourself-first budget = Prioritizes savings and debt repayment Envelope system budget = Uses cash allocation into envelopes</p> Signup and view all the answers

    Which statement best describes the concept of personal protection in personal finance?

    <p>It encompasses products to safeguard against unforeseen events.</p> Signup and view all the answers

    Using credit cards with caution is not an important aspect of personal finance.

    <p>False</p> Signup and view all the answers

    What is one benefit of having a solid budget?

    <p>Enhances financial independence</p> Signup and view all the answers

    Which of the following is considered a liquid asset?

    <p>Cash and Cash Equivalents</p> Signup and view all the answers

    Retained earnings are part of shareholders' equity.

    <p>True</p> Signup and view all the answers

    What are accounts payable?

    <p>Bills due for business operations.</p> Signup and view all the answers

    The value of paid expenses that benefit the company in future periods is recorded under __________.

    <p>Prepaid Expenses</p> Signup and view all the answers

    Which type of revenue is generated from core business activities?

    <p>Operating Revenue</p> Signup and view all the answers

    Match the following financial terms with their definitions:

    <p>Assets = Economic resources owned by a company Liabilities = Obligations of a company Equity = Owner's claim on assets Revenue = Income generated from sales and services</p> Signup and view all the answers

    Long-term debt obligations are due within one year.

    <p>False</p> Signup and view all the answers

    The main components of the Statement of Financial Position are assets, __________, and shareholders' equity.

    <p>liabilities</p> Signup and view all the answers

    Which of the following is classified as a primary expense?

    <p>Cost of goods sold</p> Signup and view all the answers

    Other comprehensive income includes only realized gains and losses.

    <p>False</p> Signup and view all the answers

    What are the components of the statement of changes in equity?

    <p>Beginning equity, net income, dividends, other comprehensive income</p> Signup and view all the answers

    Cash flows from long-term investments are categorized under ______ activities in the statement of cash flows.

    <p>investing</p> Signup and view all the answers

    Match the following financial analysis tools with their descriptions:

    <p>Horizontal Analysis = Evaluates financial statement items over time Vertical Analysis = Evaluates items as a percentage of a base amount Intracompany Basis = Compares a company's current performance with its past performance Intercompany Basis = Compares a company's financials with those of its competitors</p> Signup and view all the answers

    Which of the following best describes operating activities in the statement of cash flows?

    <p>Cash inflows and outflows from core business operations</p> Signup and view all the answers

    The statement of changes in equity reflects only the dividends paid to shareholders during the period.

    <p>False</p> Signup and view all the answers

    What do notes to financial statements provide?

    <p>Explanatory information to clarify the main financial statements</p> Signup and view all the answers

    Which of the following methods represents legally reducing tax liability through alternative assessments?

    <p>Tax Avoidance</p> Signup and view all the answers

    Non-resident Aliens are individuals who engage in business in the Philippines.

    <p>False</p> Signup and view all the answers

    What are monetary assets?

    <p>Monetary assets are short-term assets that can be easily liquidated, such as cash and cash equivalents.</p> Signup and view all the answers

    The act of transferring the tax burden to another party is known as ______.

    <p>Shifting</p> Signup and view all the answers

    What is a key advantage of time deposits?

    <p>Fixed interest rate</p> Signup and view all the answers

    Which of the following types of income is subject to final withholding tax?

    <p>Passive Income</p> Signup and view all the answers

    Penalties are imposed on early withdrawals from time deposits.

    <p>True</p> Signup and view all the answers

    Match the individual taxpayer type with its description:

    <p>Resident Citizens (RC) = Filipino citizens living in the Philippines Non-resident Citizens (NRC) = Philippine citizens residing abroad Resident Aliens (RA) = Foreigners living in the Philippines Non-resident Aliens (NRA) = Foreigners not living in the Philippines</p> Signup and view all the answers

    Capital Gains are taxed at a fixed rate regardless of the asset type.

    <p>False</p> Signup and view all the answers

    Name one type of consumer credit.

    <p>Closed-end (Installment) or Open-end (Revolving)</p> Signup and view all the answers

    What is the characteristic of monetary assets in terms of depreciation?

    <p>Monetary assets are not subject to depreciation.</p> Signup and view all the answers

    _____ are illegal lenders who charge excessive interest rates.

    <p>Loan Sharks</p> Signup and view all the answers

    Match the following sources of consumer credit with their descriptions:

    <p>Commercial Banks = Offer various loans including consumer and credit card loans Savings and Loan Associations = Specialize in long-term mortgage loans and personal installment loans Consumer Finance Companies = Provide personal loans often to those with poor credit Pawnbrokers = Offer secured loans using personal property as collateral</p> Signup and view all the answers

    Which of the following is a disadvantage of time deposits?

    <p>Penalties for early withdrawals</p> Signup and view all the answers

    Consumer finance companies provide lower interest rates due to lower risk of default.

    <p>False</p> Signup and view all the answers

    What should borrowers do to build a good credit reputation?

    <p>Manage debt responsibly and make timely payments</p> Signup and view all the answers

    Study Notes

    Personal Finance Overview

    • Personal finance is the management of an individual’s financial activities, including planning, spending, saving, and investing.
    • Key areas include income, spending, saving, investing, and personal protection through various financial products.

    Key Areas of Personal Finance

    • Income: The source of cash inflow supporting daily living needs.
    • Spending: Expenses related to purchasing goods and services, excluding investments.
    • Saving: Retaining excess cash for future investment or spending.
    • Investing: Buying assets anticipated to generate future returns.
    • Personal Protection: Financial products that shield against unexpected financial events.

    Personal Financial Habits

    • Set specific financial goals and create a budget.
    • Establish an emergency fund and work on reducing debt.
    • Invest intelligently and use credit cards cautiously.
    • Always consider family needs and take breaks when necessary.

    Common Money Mistakes

    • Failing to plan leads to overspending and reliance on credit.
    • Procrastinating retirement savings and succumbing to emotional financial decisions.
    • Focusing excessively on money rather than overall financial wellness.

    Importance of Budgeting

    • A well-structured budget enhances financial independence through responsible spending and savings.
    • Helps allocate funds for retirement, emergency reserves, and vacations.

    Budgeting Methods

    • Zero-Based Budget: Income minus expenses equals zero, suitable for stable incomes.
    • Pay-Yourself-First Budget: Prioritizes savings and debt repayment first.
    • Envelope System: Cash allocated into specified envelopes for different spending categories.

    Statement of Financial Position

    • Comprises assets, liabilities, and shareholders’ equity.

    Assets Breakdown

    • Liquid Assets: Cash, cash equivalents, and receivables that can be easily accessed or converted to cash.
    • Property, Plant, and Equipment (PPE): Long-term capital assets such as buildings and machinery.
    • Intangible Assets: Non-physical assets like trademarks and patents.

    Liabilities Overview

    • Current Liabilities: Bills and payments owed for business operations (Accounts Payable, Wages Payable).
    • Long-Term Liabilities: Obligations due beyond one year, such as mortgages and bonds.

    Shareholders’ Equity

    • Represents total assets minus total liabilities, indicating stakeholders' claim after all debts have been settled.

    Statement of Comprehensive Income

    • Covers profitability details such as revenues, expenses, and earnings over a specific period.

    Revenue Types

    • Operating Revenue: Income from primary business operations.
    • Non-operating Revenue: Income from secondary activities.

    Expenses Categories

    • Primary Expenses: Direct costs linked to revenue generation (COGS, SG&A).
    • Secondary Expenses: Costs related to non-core activities (interest payments).

    Statement of Cash Flows

    • Operating Activities: Cash movements from core business operations.
    • Investing Activities: Cash flows associated with asset acquisition and sales.
    • Financing Activities: Cash transactions related to borrowing and equity.

    Financial Statement Analysis

    • Involves evaluating a company’s performance through various comparisons, including past performance (intracompany), industry standards, and competition.

    Individual Taxpayers Classification

    • Resident Citizens: Filipino citizens living in the Philippines.
    • Non-resident Citizens: Filipinos living abroad.
    • Resident Aliens: Foreigners staying in the Philippines without plans to leave.
    • Non-resident Aliens: Foreigners without business engagements.

    Types of Income

    • Ordinary Income: Earnings from jobs or businesses.
    • Passive Income: Subject to final withholding tax (e.g., dividends, interest).
    • Capital Gains: Profits from selling stocks or property.

    Monetary Assets

    • Short-term assets easily liquidated, including cash and receivables, affected by inflation.

    Time Deposits

    • Advantages: Fixed interest rates, savings discipline, PDIC insurance.
    • Disadvantages: Penalties for early withdrawal, no added deposits during the term.

    Understanding Consumer Credit

    • Credit enables immediate acquisition of goods/services with future payment obligations.
    • Types: Closed-end (specific amount and purpose) vs. Open-end (revolving credit like credit cards).

    Sources of Consumer Credit

    • Commercial Banks: Variety of loans, including consumer and housing loans.
    • Consumer Finance Companies: Higher-risk loans for consumers with poor credit histories.
    • Family and Friends: Personal loans requiring professional handling for clarity.

    Building Good Credit Reputation

    • Creditworthiness assessed through past debt management, crucial for securing loans and credit offerings.

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    Description

    Dive into the fundamentals of personal finance with this quiz. Explore essential concepts such as income, budgeting, saving, and investing. This quiz is designed to help you understand the key areas vital for managing your finances effectively.

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