AG finance (exam 2) questions well
answered to pass
Purpose and use of a balance sheet - correct answer ✔✔A systematic organization of everything
owned by a business or individual at any given point and time.
-Is used to measure the financial position of a business at any time, done through 2 concepts
Concepts involved in measuring the financial position of a business(2) - correct answer
✔✔1)Solvency
2)Liquidity
Solvency(long term) - correct answer ✔✔-Measures the liabilities of a business relative to the
amount of owner equity invested.
-Provides indication that all debts can be paid if business sold
-Assets must be Greater than liabilities, if not than the business is insolvent(bankrupt)
Can you be liquid, but not solvent? - correct answer ✔✔Yes
Can you be solvent,but not liquid? - correct answer ✔✔Yes
Liquidity(short term) - correct answer ✔✔-Measures ability to meet financial obligations when
they come due without disrupting the flow of business
-Measures the ability to generate cash in the amounts and at the time its needed.
-Cash requirements and sources of cash are generally measured only over the next accounting
period... making liquidity a short run concept
, Asset - correct answer ✔✔Anything of value owned
Liability - correct answer ✔✔Any debt or financial obligation
purpose and use of a balance sheet continued - correct answer ✔✔there for it is a listing of
assets and liabilities that concludes with an estimate of net worth or owner equity(Asset-
Liability= owner equity)
Categories of a balance sheet - correct answer ✔✔1) Assets
2)Liabilities
3)owner equity
1)Assets - correct answer ✔✔-has value for one or both of 2 reasons
1)Assets can be sold to generate cash
2)Used to produced other goods that in turn can be sold for cash in the future
Current Asset(short term ) - correct answer ✔✔Are assets that can be used up, sold, or
converted to cash in the next year as a normal part of business activities
-The most liquid of all assets
(ex..Cash, checking and savings account balances, stock and bounds
Non-Current Assets(Long-term) - correct answer ✔✔Any asset you are going to hold on to 12
months or more, you can sell,but you better have a replacement
(ex..Machinery, equipment)
2)Liabilities - correct answer ✔✔Any Obligation or debt owed to someone else.
-it represents an outsiders claim against one or more of the business assets.
answered to pass
Purpose and use of a balance sheet - correct answer ✔✔A systematic organization of everything
owned by a business or individual at any given point and time.
-Is used to measure the financial position of a business at any time, done through 2 concepts
Concepts involved in measuring the financial position of a business(2) - correct answer
✔✔1)Solvency
2)Liquidity
Solvency(long term) - correct answer ✔✔-Measures the liabilities of a business relative to the
amount of owner equity invested.
-Provides indication that all debts can be paid if business sold
-Assets must be Greater than liabilities, if not than the business is insolvent(bankrupt)
Can you be liquid, but not solvent? - correct answer ✔✔Yes
Can you be solvent,but not liquid? - correct answer ✔✔Yes
Liquidity(short term) - correct answer ✔✔-Measures ability to meet financial obligations when
they come due without disrupting the flow of business
-Measures the ability to generate cash in the amounts and at the time its needed.
-Cash requirements and sources of cash are generally measured only over the next accounting
period... making liquidity a short run concept
, Asset - correct answer ✔✔Anything of value owned
Liability - correct answer ✔✔Any debt or financial obligation
purpose and use of a balance sheet continued - correct answer ✔✔there for it is a listing of
assets and liabilities that concludes with an estimate of net worth or owner equity(Asset-
Liability= owner equity)
Categories of a balance sheet - correct answer ✔✔1) Assets
2)Liabilities
3)owner equity
1)Assets - correct answer ✔✔-has value for one or both of 2 reasons
1)Assets can be sold to generate cash
2)Used to produced other goods that in turn can be sold for cash in the future
Current Asset(short term ) - correct answer ✔✔Are assets that can be used up, sold, or
converted to cash in the next year as a normal part of business activities
-The most liquid of all assets
(ex..Cash, checking and savings account balances, stock and bounds
Non-Current Assets(Long-term) - correct answer ✔✔Any asset you are going to hold on to 12
months or more, you can sell,but you better have a replacement
(ex..Machinery, equipment)
2)Liabilities - correct answer ✔✔Any Obligation or debt owed to someone else.
-it represents an outsiders claim against one or more of the business assets.
