MODULE 2 - CASH MANAGEMENT AND
THE USE OF DEBT EXAM WITH
COMPLETE QUESTIONS AND ANSWERS
{ GRADED A+}
What are the two basic financial statements used in financial planning?
- ✔✔1. the statement of financial position (personal balance sheet) and
2. cash flow statement.
How do people get the money they need when it is not available or advisable to
take it from existing personal resources? - ✔✔The borrow the money.
True or false: While the abuse of debt can get a person into serious financial
trouble, prudent use of debt can be a significant aid in meeting financial goals. -
✔✔True
,What does the statement of financial position do? - ✔✔Considers assets and
liabilities on a given date and can determine an individuals current net worth--
assets (the items owned_ minus liabilities (the items owed)
What does the cash flow statement do? - ✔✔records cash inflows (i.e. salary,
investment income) and outflows (li.e. loan payments, utility payments, rent) over
a period of time (usually a year).
Shows whether during that period, there is a positive or negative cash flow by
subtracting outflows from inflows.
True or False: the financial position and cash flow statements serve different
purposes, yet are interconnected. A planner can use this info to develop financial
plans. - ✔✔True
True or false: it may help to think of the statement of financial position as a
snapshot of the financial situation as of a given date. - ✔✔True
What is Net worth - ✔✔The remaining value after liabilities have been subtracted
from assets.
, Assets - Liabilities = Net worth
Example of a financial snapshot: - ✔✔when your client, Jorge, pays for part of his
vacation with credit cards, his net worth decreases because of an added liability
with no corresponding increase in assets. If the vacation costs $4,000, and Jorge
pays $1,000 in cash and finances the rest with a credit card, his assets decrease by
$1,000, his liabilities increase by $3,000, and his net worth is reduced by $4,000.
Another example of a financial snapshot: - ✔✔Financial transactions that do not
affect net worth are common. For example, if another client, Tariq, buys a
$100,000 airplane, pays $40,000 in cash, and finances the remainder, the
immediate effect on his financial position, ignoring interest costs, is as follows:
What are the three categories of assets? - ✔✔1. cash/cash equivalents (liquid
assets)
2. invested assets
3. use assets.
Example of an use asset: - ✔✔if your clients have acquired a rare coin collection,
display it in their home, and do not intend to sell it, the coin collection should be
classified as a use asset.
THE USE OF DEBT EXAM WITH
COMPLETE QUESTIONS AND ANSWERS
{ GRADED A+}
What are the two basic financial statements used in financial planning?
- ✔✔1. the statement of financial position (personal balance sheet) and
2. cash flow statement.
How do people get the money they need when it is not available or advisable to
take it from existing personal resources? - ✔✔The borrow the money.
True or false: While the abuse of debt can get a person into serious financial
trouble, prudent use of debt can be a significant aid in meeting financial goals. -
✔✔True
,What does the statement of financial position do? - ✔✔Considers assets and
liabilities on a given date and can determine an individuals current net worth--
assets (the items owned_ minus liabilities (the items owed)
What does the cash flow statement do? - ✔✔records cash inflows (i.e. salary,
investment income) and outflows (li.e. loan payments, utility payments, rent) over
a period of time (usually a year).
Shows whether during that period, there is a positive or negative cash flow by
subtracting outflows from inflows.
True or False: the financial position and cash flow statements serve different
purposes, yet are interconnected. A planner can use this info to develop financial
plans. - ✔✔True
True or false: it may help to think of the statement of financial position as a
snapshot of the financial situation as of a given date. - ✔✔True
What is Net worth - ✔✔The remaining value after liabilities have been subtracted
from assets.
, Assets - Liabilities = Net worth
Example of a financial snapshot: - ✔✔when your client, Jorge, pays for part of his
vacation with credit cards, his net worth decreases because of an added liability
with no corresponding increase in assets. If the vacation costs $4,000, and Jorge
pays $1,000 in cash and finances the rest with a credit card, his assets decrease by
$1,000, his liabilities increase by $3,000, and his net worth is reduced by $4,000.
Another example of a financial snapshot: - ✔✔Financial transactions that do not
affect net worth are common. For example, if another client, Tariq, buys a
$100,000 airplane, pays $40,000 in cash, and finances the remainder, the
immediate effect on his financial position, ignoring interest costs, is as follows:
What are the three categories of assets? - ✔✔1. cash/cash equivalents (liquid
assets)
2. invested assets
3. use assets.
Example of an use asset: - ✔✔if your clients have acquired a rare coin collection,
display it in their home, and do not intend to sell it, the coin collection should be
classified as a use asset.
