Accounting Terms (Chapter 3) 1. Book value = A L (as shown in the balance sheet) 2.

. Liquidity: the period of time before an asset is converted to cash or until a liability is paid 3. Long-term solvency: the riskiness of a company with regard to the amount of liabilities in its capital structure. a. The risk to an investor or creditor increases as the % of liabilities, relative to equity, increases. 4. Financial flexibility: the ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities and needs. 5. Current assets: cash and all other assets expected to become cash or be consumed within one year of the operating cycle, whichever is longer. 6. Cash equivalents: certain negotiable items such as commercial paper, money market funds, and U.S. treasury bills. 7. Short-term investments (short-term marketable securities): liquid investments not classified as cash equivalents. 8. Noncurrent assets: investments, property, plant and equipment, intangible assets.