MGMT 470 Exam 2

Float Causes

1. Availability 2. Processing

Sources of Credits and Debt

1. Commercial Banks - 57% 2. Owner Loans - 12% 3. Finance Company - 11% 4. Family and Friends - 4% 5. Thrift - 3% 6. Leasing - 2% 7. Unknown - 2% 8. Other - 9%

Primary Causes of Cash Flow Problems

1. Difficulty collecting money from customers 2. Seasonal variation in sales 3. Unexpected decreases in sales

2 Reasons for differences between bank balance and company book balance

1. The bank knows information about your account that you can't know until the bank tells you. 2. You know information about your account that the bank can't know because relevant transactions have not yet reached the bank

Balloon Loan

A type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to pay the remaining principal balance of the loan

Bank Available Balance

Actual cash value of an account

Receivables

Amount owed to a business for merchandise that was sold on credit

Payables

Amount owed to vendors; merchandise or services purchased on credits

Reconciling bank balance with company book balance

An accounting process that identifies the causes of all differences between book and bank balances

APR

Annual Percentage Rate

Factoring Receivables

Borrowing money secured by a firm's account receivables

Closing costs

Buyer and seller come together and agree on who pays for surveys and other costs related to switching hands of the good or property

Processing Float

Delays in delivering checks

Availability Float

Delays in transferring money due to internal procedures

Income tax is collected on money that is gained through a loan, because it's a debt. (T/F)

False

Kiting refers to an outside activity normally between a parent and their kids. (See Mary Poppins) T/F

False

Commercial Banks mainly look at an individual's credit score (T/F)

False; this describes Personal banks

Putting graphite on the account number so that the machine can't read it and it must be read by an employee is known as ______

Gaming the System

Cash Flow Management

Managing cash to ensure that your business maintains enough on hand to meet business needs

Money

Medium of exchange accepted by the community, measures value that can be saved for later purposes

Overdraft

Negative balance in a depositor's bank account

Bank Ledger Balance

Sum of deposits and withdrawals recorded in a bank's accounting records

Float

The delay in movement of money among depositors and banks

Bartering

The exchange of goods or services; usually there is no exchange of cash

Bank ledger balance may vary significantly from the actual value of cash that the bank is holding for the depositor because of deposit collection and cash transfer delays. (T/F)

True

Commercial banks will loan to people with low credit scores to be able to charge high interest rates. (T/F)

True

Credit Cards are the main thing businesses use to finance themselves. (T/F)

True