question

Solid cash management enables a business owner to:

answer

A) adequately meet the cash demands of the business. B) avoid retaining unnecessarily large cash balances. C) stretch the profit-generating power of each dollar the business owns.

question

________ is the most important, yet least productive, asset that a small business owns.

answer

cash

question

Which of the following statements concerning cash management is false?

answer

Young companies tend to be "cash sponges," soaking up every available dollar of cash.

question

The first step in managing cash more effectively is:

answer

understanding the company's cash flow cycle.

question

More companies fail for the lack of ________ than for the lack of ________.

answer

cash; profit

question

Which of the following measures a company's liquidity and its ability to pay its bills and other financial obligations on time?

answer

cash flow

question

________ typically lead(s) sales; ________ typically lag(s) sales.

answer

Purchases; collections

question

A cash budget reveals important clues about how well a company ________.

answer

A) balances its accounts receivable and accounts payable B) controls inventory C) finances its growth

question

A firm's cash budget should:

answer

show the amount and timing of cash receipts and cash disbursements on a quarterly basis.

question

A cash budget:

answer

A) is based on the cash method of accounting. B) is a "cash map," showing the amount and the timing of cash flowing into and out of the business over a given period of time. C) will never be completely accurate since it is based on forecasts.

question

Which of the following is not a step in creating a cash budget?

answer

Forecasting profits

question

A cash budget is based on the cash method of accounting, meaning that cash receipts and cash disbursements are recorded in the forecast only when ________ is expected to take place.

answer

the cash transaction

question

Jane is arguing with Joan about how much cash their small retail outlet needs as they prepare their cash budget. Jane feels that with the Christmas season coming, their busiest time, they need more cash available while Joan feels they do not because their sales volume will be up significantly. Jane and Joan are discussing which step of the cash budgeting process?

answer

Determining an adequate minimum cash balance

question

A cash budget is only as accurate as the ________ forecast from which it is derived.

answer

sales

question

What factors can drastically affect a company's cash flow?

answer

A) Increased competition B) Economic swings C) Normal seasonal variations

question

Which of the following would be a potential source of information for preparing a sales forecast?

answer

A) Past records B) Trade associations and the Chamber of Commerce C) Similar firms

question

When a firm sells goods or services on credit, the owner needs to remember that for cash budgeting purposes:

answer

she must account for a delay between the sale and the actual collection of the proceeds.

question

It is recommended that new business owners estimate cash disbursements as best they can and then add on another ________.

answer

10-25 percent

question

When estimating the firm's end-of-month cash balance, the owner should first:

answer

determine the cash balance at the beginning of the month.

question

The fact that the cash budget illustrates the flow of cash in a business helps the owner to:

answer

get a seasonal line of credit rather than an annual line of credit.

question

By planning cash needs ahead of time, a small business is able to achieve all but which of the following?

answer

Provide the opportunity to forgo quantity and cash discounts.

question

The "big three" of cash management include:

answer

accounts receivable, accounts payable, and inventory.

question

Experts estimate that ________ percent of industrial and wholesale sales are on credit, while ________ percent of retail sales are on credit.

answer

90,40

question

Small businesses selling on credit find that

answer

it is expensive, requires a great deal of effort, and it is risky.

question

The cost to check a potential customer's credit at a reporting service starts at:

answer

85$

question

________ small businesses take the time to conduct a credit check.

answer

few

question

An important source of credit information that collects information on small businesses that other reporting services ignore is:

answer

National Association of Credit Management.

question

According to the American Collectors Association, if a business is writing off more than ________ of its sales as bad debts, it needs to tighten its credit and collection policies.

answer

5 %

question

A collection agency typically takes ________ percent of the amounts they collect on past due accounts

answer

25 to 30

question

To encourage credit customers to pay invoices promptly, a business owner should:

answer

A) ensure that all invoices are clear, accurate, and timely. B) state clearly a description of the goods or services purchased and an account number. C) include a telephone number and a contact person in case the customer has a question or a dispute.

question

Once a small business has established a firm written credit policy and has clearly communicated it, the next step in building an effective credit policy is to:

answer

send invoices promptly

question

Once a credit account becomes past due, a small business owner should:

answer

send a "second notice" letter requesting immediate payment

question

According to the American Collector's Association, only ________ of accounts more than 90 days delinquent will be paid voluntarily.

answer

5 percent

question

The Fair Debt Collection Practices Act prohibits business owners from:

answer

harassing people who are past due.

question

An effective approach to successful collections includes:

answer

timely, well-communicated payment expectations with well-documented records

question

A contract in which a business selling an asset on credit gets a security interest in that asset (the collateral), protecting its legal rights in case the buyer fails to pay, is a:

answer

security agreement

question

An entrepreneur can potentially improve collections by

answer

A) contacting the customer once the bill becomes past due to verify they have received the bill and that it is accurate. B) negotiate payment if the customer is unable to pay the full amount on time. C) developing a rapport with the customer that will lead to prompt payment

question

Efficient cash managers:

answer

set up a payment calendar in order to both pay on time and take advantage of cash discounts for early payment.

question

For product-based businesses, ________ often represents their largest capital investment

answer

inventory

question

Which of the following is true about inventory management for the small business owner?

answer

Inventory is the largest capital investment for most businesses but few owners use any formal means for managing it.

question

Only about ________ percent of a typical business' inventory turns over quickly.

answer

20

question

Which of the following inventory management techniques would help a business owner make the best use of his company's cash?

answer

A) Avoid overbuying inventory. B) Schedule inventory deliveries at the latest possible date. C) Purchase goods from the fastest suppliers who can meet quality standards to keep inventory levels low.

question

Exchanging goods and services for other goods and services, or ________, is an effective way for a small business to conserve cash.

answer

bartering

question

The real benefit of barter for the entrepreneur is that:

answer

it is "paid" for at the wholesale cost of doing business, yet it is credited at the retail price

question

Barter offers business owners the benefit of:

answer

A) buying materials, equipment, and supplies without spending valuable cash on them. B) transforming slow-moving inventory into much-needed goods and services. C) "paying" for goods and services at wholesale cost and getting credit for retail price.

question

Which of the following is an effective way to trim overhead?

answer

Negotiate fixed loan payments to coincide with company cash flow.

question

Which of the following statements concerning leasing is true?

answer

A) Leasing is an "off-the-balance-sheet" method of financing assets. B) Although total lease payments for an asset are greater than those on a conventional loan, most leases do not require large capital outlays as down payments. C) Leasing gives business owners access to equipment even when they cannot borrow the money to buy it.

question

Leasing allows business owners to forecast cash flows more ________ because lease payments are ________ amounts paid over a particular time period.

answer

accurately; fixed

question

"Stick to what you are good at and ________ everything else" is an approach to reduce overhead costs.

answer

out source

question

Rather than build the current year budget on increases from the previous year's budget, ________ evaluates the necessity of every item.

answer

zero-based budgeting

question

When investing surplus cash, the small business owner's key objectives should be on the ________ of the investment.

answer

liquidity and safety

question

A checking account that never has idle funds-because it draws funds from an interest-bearing master account to cover checks written-is called a:

answer

zero-balance account

question

A sweep account is a checking account that:

answer

automatically moves all funds in a company's checking account above a predetermined minimum into an interest-bearing account

MGMT 3850 Ch.12 – Flashcards

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