Subject

Accounting & Finance study guides

Assets, ledgers, interest, and investing — with worked numbers and comparison tables.

47 explained questions, each with the answer, a worked explanation, and something interactive to help it stick.

Which statement best describes how an investor makes money off debt?An investor makes money off debt by lending money, most often by buying a bond or note, and earning interest (the coupon) on that loan, plus the return of the original principal when the debt matures. The correct option is: earns interest by lending.Read the guide
What type of credit are people most likely to use for small purchases during their lifetime?A credit card is the type of credit people are most likely to use for small, everyday purchases. It is revolving credit you can reuse up to a limit, unlike installment loans (personal, auto, or mortgage) that fund single large expenses.Read the guide
What is equal billing, and how can it help you when creating your monthly budget?Equal billing (also called budget billing) averages your estimated annual utility cost into fixed, equal monthly payments. It smooths out seasonal spikes so every bill is the same and predictable, making it much easier to plan a monthly budget.Read the guide
Which of the following is not a common feature of a financial institution?The direct production and sale of physical consumer goods (manufacturing) is not a feature of a financial institution. Financial institutions are intermediaries: they accept deposits, extend loans, transfer funds, and manage risk — they do not make or sell tangible products.Read the guide
What is a major difference between retail banks and credit unions?The major difference is ownership and profit model: retail banks are for-profit companies owned by shareholders, while credit unions are not-for-profit cooperatives owned by their members. That is why credit unions often offer lower fees and better rates.Read the guide
Which of the following financial institutions typically have the highest fees?Payday lenders — along with check-cashing outlets and pawn shops — typically charge the highest fees, often equivalent to triple-digit annual percentage rates. Among mainstream options, large commercial banks charge more than credit unions or online banks.Read the guide
Which of the Following Accounts Cannot Be Linked to Most P2P Apps or Services?A Certificate of Deposit (CD) cannot be linked to most P2P apps or services. Peer-to-peer apps like Venmo, Cash App, and Zelle connect to checking accounts, debit cards, and sometimes credit cards -- accounts built for everyday spending. CDs, along with other locked savings and investment accounts, are not designed for frequent transfers.Read the guide
Why should you log into your online or mobile app account with the travel charge card vendor?You should log in so you can easily access your statements, make payments, set up mobile alerts, and review transactions to catch and dispute unauthorized or fraudulent charges. Regular monitoring is a core cardholder responsibility that keeps the account in good standing.Read the guide
What percentage of your gross salary does the Consumer Financial Protection Bureau suggest for student loan payments?8%. The Consumer Financial Protection Bureau suggests keeping your total student loan payments at no more than 8% of your gross (pre-tax) salary. Staying under this threshold keeps payments affordable and lowers the risk of delinquency and default.Read the guide
Which Reason to Invest Resonates the Most With You, and Why?This is a personal reflection prompt with no single correct answer. The strongest, most defensible reasons to invest are building long-term wealth through compound growth, outpacing inflation, funding retirement, and reaching goals such as a home or education. Explain your choice by tying it to your own goals and time horizon.Read the guide
Dave mentions that insurance is the defense for managing your money. Why is this true?Insurance is defense because it transfers risk. For a small, predictable premium it shields your assets from catastrophic loss, so a disaster does not wipe out savings or force you into debt—protecting the wealth your financial offense has built.Read the guide
Why Is It Worth the Time and Effort to Create and Fine-Tune Your Budget and Make Budgeting a Habit?Budgeting is worth the effort because making it a habit gives you control over your spending, helps you reach financial goals, keeps you out of debt while building savings, and lowers money-related stress. Once routine, it takes little time and pays off continuously.Read the guide
To whom would you forward a request for an advance decision when faced with a questionable payment?Forward the request to the Defense Office of Hearings and Appeals (DOHA). Under 32 CFR Part 282, DOHA issues advance decisions and settles questionable DoD travel-payment claims. Routine DTS travel policy questions route through PDTATAC first.Read the guide
A life insurance policy would be considered a wagering contract without what?Without insurable interest. Insurable interest means the policyowner would suffer a genuine financial or emotional loss if the insured dies. Lacking it, the policy is not true insurance but a bet, or wagering contract, on someone's life.Read the guide
How Can an Insurance Company Make a Profit by Taking In Premiums and Making Payouts?An insurer profits because the premiums collected from many policyholders exceed the claims paid to the few who file losses (underwriting profit through risk pooling), and because it invests the premium reserves it holds before claims come due, earning investment income on that money.Read the guide
What are two reasons someone might purposely choose a higher monthly payment?Two reasons: (1) to pay off the loan faster by shortening the term, and (2) to reduce the total interest paid over the life of the loan. A larger payment attacks the principal sooner, so less interest accrues.Read the guide
Credit Cards That Offer Flashy Rewards Like Airline Miles Often . . . ?Credit cards that offer flashy rewards like airline miles often charge a high annual fee and frequently carry higher interest rates, so the value of the miles must be weighed against those costs. They may also lock you into a single airline's program.Read the guide
What Is the Correct Definition of a Cosigner for a Loan?A cosigner is a person who signs a loan alongside the borrower and agrees to take equal legal responsibility for repaying it if the primary borrower defaults — but who does not gain ownership of whatever the loan is used to buy.Read the guide
When Should Fixed and Variable Monthly Budgeted Expenses First Be Planned?At the start of each month, before the month begins. Planning fixed and variable expenses ahead of time lets you allocate your expected income, set spending goals, and prioritize obligations so every dollar has a job before you spend it.Read the guide
Which are common types of bonds that are currently issued? (Check all that apply.)The common types of bonds currently issued are corporate bonds, municipal bonds, and Treasury (U.S. government) securities such as bills, notes, and bonds. "Equity bonds" is not a real instrument, and "war bonds" are no longer issued, so both are incorrect distractors.Read the guide
When creating a budget, you must track both your budgeted expenses and your ______ expenses?The missing word is "actual." When creating a budget you track both budgeted (planned) expenses and actual (real) expenses, then compare the two to find the variance and adjust your future spending accordingly.Read the guide
How Do Lenders Evaluate If a Borrower or Cosigner Will Pay Them Back?Lenders use the three C's of credit: capacity (income and ability to repay), collateral (assets that can be seized if you default), and character (credit history of paying on time). The correct option is capacity, collateral, and character.Read the guide
Which of These Is an Advantage of Checking Accounts?The main advantage of a checking account is easy, convenient access to your money — through a debit card, checks, ATMs, and online transfers — plus FDIC insurance, direct deposit, and an automatic record of your spending. It lets you easily access and manage your money.Read the guide
Why Might Variable Expenses Change a Great Deal at Different Times of Year?Because variable expenses depend on usage and season. Heating and cooling costs, for example, vary considerably with the weather, so utility bills and other seasonal spending spike in summer and winter and drop in milder months, unlike fixed costs.Read the guide
What is the correct definition of 'character' for potential cosigners?For a cosigner, 'character' means their track record of repaying debt responsibly — their credit history and demonstrated reliability in paying obligations on time. It is not their assets, income, or current bank balance; those fall under other credit factors like capital and capacity.Read the guide
Fixed annuities provide each of the following except?Fixed annuities provide each of the following EXCEPT a hedge against inflation. They offer a guaranteed interest rate, tax-deferred growth, and a dependable stream of retirement income, but their fixed payments lose purchasing power as prices rise.Read the guide
True or false: If you have an irregular income, budgeting won't work for you.False. Budgeting works with irregular income—and matters more, not less. Plan around your lowest expected monthly income, build a fresh budget each month, and rank expenses by priority so essentials are covered first when earnings are unpredictable.Read the guide
A short-term financial goal might include saving for what?A short-term financial goal is one you can reach within about one to three years. Examples include building an emergency fund, a vacation, a wedding, a new phone or appliance, holiday gifts, or paying off credit-card debt.Read the guide
What are debt certificates that are purchased by an investor?Bonds. A bond is a debt certificate (a fixed-income security) an investor buys, effectively lending money to a government or corporation. In return the issuer pays periodic interest and repays the face value, or principal, when the bond matures.Read the guide
Which are types of income tax that people pay? Check all that apply.Federal, state, and local income taxes are the three types people pay on their earnings. Sales tax is a consumption tax, not an income tax, and "progressive" and "flat" describe how a tax is structured, not separate types.Read the guide
The Envelope System Is Especially Helpful for Expenses Like What?Variable, discretionary expenses you tend to overspend on — such as groceries and food, gas, entertainment, dining out, and personal shopping. Cash in labeled envelopes sets a visible, physical cap, so when an envelope is empty, spending in that category stops.Read the guide
In 1972, what association made borrowing money to attend college much easier than it had been?The Student Loan Marketing Association (SLMA), better known as Sallie Mae, created by Congress in 1972. By buying and servicing student loans, it added liquidity to the market so lenders could offer far more college loans than before.Read the guide
Hope's contribution to her retirement plan is best described as what kind of contribution?It is a pre-tax contribution. The money is deducted from Hope's pay before federal income tax is calculated, lowering her current taxable income. She pays no income tax on it now; instead it is taxed later when she withdraws it in retirement.Read the guide
What should you do if there are incorrect transactions on your monthly statement?Report the discrepancy to your bank or card issuer promptly and dispute it in writing within 60 days of the statement date. Do not ignore it or wait. Under the Fair Credit Billing Act, timely written notice protects your right to an investigation and correction.Read the guide
Pat Owns a 20-Pay Life Policy - Which Statement Is Correct?The correct statement is that the policy can be paid up early. A 20-pay life policy is a limited-pay whole life policy: premiums are paid for only 20 years, after which coverage stays in force, fully paid-up, for life with no further premiums.Read the guide
What is the underlying concept regarding level premiums?The core concept is that in the early policy years the insured pays more than the actual cost of insurance. This overpayment accumulates as a reserve (cash value) that, with interest, subsidizes the higher cost of insurance in later years, keeping the premium constant for life.Read the guide
When Are Goods in Transit Included in a Purchaser's Inventory?Goods in transit are included in the purchaser's inventory when they are shipped FOB shipping point, because ownership (title) transfers to the buyer the moment the goods leave the seller. Under FOB destination, the goods remain the seller's inventory until delivered.Read the guide
What Is One Cost of Avoiding Insurance?One cost of avoiding insurance is falling into serious debt if a major problem occurs. Without coverage, you must pay the full cost of an accident, illness, or disaster out of pocket, and a single large loss can create overwhelming, long-lasting debt.Read the guide
What Is the Benefit of a Checking Account? (EverFi)A checking account gives you a safe, convenient place to store money and spend it easily through a debit card, checks, and online bill pay, so you avoid carrying cash and can access your money anytime while it stays protected.Read the guide
Which of the Following Best Describes a Loan?A loan is best described as money a borrower receives from a lender and promises to repay, usually with interest, over a set period. It is not a gift, a grant, insurance, or a tax deduction — the defining feature is the obligation to pay it back.Read the guide
Is It True That 90% of Millionaires Make Over $100,000 a Year?False. According to Dave Ramsey's study of over 10,000 millionaires, only about 31% averaged $100,000 or more per year over their careers, and one-third never earned six figures in any single year. Wealth is built through consistent saving and investing, not a high salary.Read the guide
At What Point Does a Whole Life Insurance Policy Endow?A whole life policy endows when its accumulated cash value grows to equal the death benefit (face amount) at the policy's maturity date. On traditional policies that is age 100; on many modern contracts it is age 121. At endowment the insurer pays the face amount to the living policyholder.Read the guide
Personal finance is 20% ______ and 80% ______: what fills the blanks?Personal finance is 20% head knowledge and 80% behavior. This well-known Dave Ramsey principle means success with money depends far more on your daily habits and self-discipline than on knowing the math or advanced financial theory.Read the guide
Which of the following is true about income?The true statement is that income is money you earn or receive - most often from working (wages or salary) but also from interest, dividends, rent, and business profits. Income is money coming in, not a payment you make to the government.Read the guide
All of These Statements Concerning Settlement Options Are True EXCEPT?The false statement is that settlement options are available only with whole life insurance. In reality, settlement options apply across policy types and simply govern how the insurer pays the death benefit to the beneficiary, whether as a lump sum, fixed period, fixed amount, interest-only, or life income.Read the guide
Which statement regarding the change of beneficiary provision is true?True: the policyowner may change the beneficiary at any time, without the insurer's or the current beneficiary's consent, as long as the beneficiary was named revocable. If the beneficiary is irrevocable, that person's written consent is required to make a change.Read the guide
What Is the Direct Write-Off Method of Accounting for Uncollectible Accounts?The direct write-off method records bad debt expense only when a specific account is judged uncollectible, debiting Bad Debt Expense and crediting Accounts Receivable. It uses no estimates, violates the matching principle, and is required for U.S. tax but permitted under GAAP only when the amounts are immaterial.Read the guide