BA109 Quiz 12

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

20

It is estimated that approximately ________ companies, most of them small, engage in barter exchanges every year.

350,000

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

5 percent

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

90, 40

A cash budget:

All of these

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

All of these

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

All of these

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

All of these

Which of the following statements concerning leasing is true?

All of these

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

All of these

On March 10th, a business owner receives an invoice from a supplier for $416.27 with "net 30" credit terms marked on it. On April 7th, the owner writes the supplier a check for $416.27 and mails it. When would this cash disbursement show up on the company's cash budget?

April 7th

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

Cash

A highly profitable business is a highly liquid business.

False

A highly profitable company rarely experiences cash flow problems.

False

A small company's ideal minimum cash balance is one month's sales.

False

For cash planning purposes, it is better to underestimate cash disbursements than to overestimate them.

False

It is considered unethical for small business owners to regulate payments to their companies' advantage.

False

Proper cash management techniques call for a small business owner to pay invoices as soon the invoices arrive.

False

Small business managers need not be concerned about investing surplus cash since small amounts of cash sitting around for a few days or weeks are not worth investing.

False

Small business owners generally should not take advantage of cash discounts vendors offer, choosing instead to maintain control of their cash for as long as possible.

False

Small business owners should not press customers for payment of their past due accounts for fear of losing them as customers altogether.

False

The goal of cash management is to maintain as much cash as possible on hand to meet any unexpected circumstances that might arise.

False

The key factor in forecasting cash disbursements for a cash budget is to record them in the month when they are incurred, not when they are paid.

False

The most reliable method of determining an adequate minimum cash balance is using estimates of similar businesses from trade literature.

False

The primary problem with cash management tools is that they are too complex and time consuming for small business owners to use practically.

False

The shorter a company's cash flow cycle, the more likely it is to encounter a cash crisis.

False

Typically, small business owners should prepare a projected weekly cash budget for at least six months and quarterly estimates for the remainder of the year, being careful to cover all seasonal sales fluctuations.

False

When a small business encounters a sales slowdown, the first thing the owner should do is cut marketing and advertising expenditures to conserve cash.

False

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

Forecasting profits

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

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

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

Provide the opportunity to forgo quantity and cash discounts.

A basic principle of cash management is verifying all invoices before paying them.

True

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

True

Because small business owners often rely on informal procedures for managing cash, they are most likely to become victims of embezzlement and fraud by their employees.

True

Because the heart of the cash budget is the sales forecast, the cash budget is only as accurate as the sales forecast on which it is based.

True

Cash and quantity discounts allow business owners to receive a price break in the goods they purchase.

True

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

True

Changing your firm's shipping terms from "F.O.B. buyer" to "F.O.B. seller" can improve your cash flow, as it switches the cost of shipping from you to your buyer.

True

Compiling the total cash on hand, bank balance, summary of the day's sales, summary of the day's cash receipts, and a summary of accounts receivables collections into monthly summaries provides the basis for making reliable cash forecasts.

True

Important advantages of leasing include the flexibility of the lease agreement and protection against obsolescence.

True

It is likely that young companies and rapidly growing companies will experience cash flow difficulties.

True

Only about 20 percent of a typical business' inventory turns over quickly.

True

Rather than build the current year's budget on increases from the previous year's budget, zero-based budgeting starts from a budget of zero and evaluates the necessity of every item.

True

Seasonal sales patterns cause cash balances to fluctuate dramatically, creating the need for cash forecasts.

True

Some businesses use cycle billing, in which a company bills a portion of its credit customers each day of the month to smooth out uneven cash receipts.

True

The objectives of cash management are to adequately meet the cash demands of the business, to avoid retaining unnecessarily large cash balances, and to stretch the profit-generating power of each dollar the business owns.

True

The real benefit to a business owner engaging in barter is the ability to "pay" for goods and services at her wholesale cost and to get credit for the retail price.

True

To project cash receipts, an entrepreneur must analyze accounts receivable to determine the company's collection pattern.

True

When investing surplus cash, an owner's primary objective should be on the safety and liquidity of the investments.

True

A sweep account is a checking account that:

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

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

bartering

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

cash; profit

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

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

The Fair Debt Collection Practices Act prohibits business owners from:

harassing people who are past due.

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

liquidity and safety

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

out source

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:

security agreement.

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:

send invoices promptly.

Efficient cash managers:

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

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

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

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.

the cash transaction

An effective approach to successful collections includes:

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

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:

zero-balance account.

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

zero-based budgeting