Tutor profile: Kelsey W.

What is personal liquidity and why is it important? Explain insufficient liquidity and how to use the ratio to plan.

Personal liquidity is the ability to pay short term obligations with available funds. Simply, you have the cash to pay your bills. Insufficient liquidity means that you have the funds to cover your obligations, but you are unable to access those funds (investments, equity, etc.) The liquidity ratio should be high and assessed regularly to be sure that the individual is in good financial condition.

What is NPV, how is it calculated, and how is it used in decision making?

NPV is the Net Present Value of a proposed project for a firm. It is the sum of all future cash flows/values at a pre-determined rate. It helps firms in deciding between projects or whether to invest in a project at all. It is said that you should invest if NPV >0. However, if choosing between projects, you should pick the one with the higher NPV.

If a company prepays for rent (6 months) at their inception, what is the entry for that transaction? What is the entry in month two? Explain.

Part A: DR: Prepaid Rent CR: Cash Part B: DR: Rent Expense CR: Prepaid Rent Prepaid rent is an asset that the company gains through paying their rent in advance, but the payment of cash results in a decrease of that asset in the same amount. You debit Rent Expense to record the transactions and "increase" the expense. You credit Prepaid Rent because it is an accrual and is decreasing by 1/6 in month two.