small bus chapter 13

The difference between the median cash inflow and the median cash outflow of the typical small business is​ ______ per month.

$210

Bonita​ Madison, owner of B.​ Madison, a ladies clothing​ store, has been calculating ratios for her business. She knows that her​ company's average collection period ratio​ (days' sales​ outstanding) is 44​ days, days' inventory outstanding is 91​ days, and average payable period ratio​ (days' payables​ outstanding) is 31 days.​ Madison's cash conversion cycle​ is:

104 days

The typical wine and spirits shop generates​ _____ percent of its annual sales volume between December 15 and December 31.

15 to 18

Collection agencies and attorneys typically take as fees​ ______ percent of any​ past-due accounts they collect.

25 to 30

​Elaine's Gifts receives a​ $1,000 invoice from Precious Memories Inc. with the​ terms, "2/10, net​ 30." If​ Elaine' Gifts fails to take advantage of the discount Precious Memories Inc.​ offers, what effective interest rate is​ Elaine's Gifts paying​ (stated as an annual percentage​ rate, APR)?

37.25 percent

If a small business is writing off more than​ _____ percent of sales as bad​ debts, its owner should tighten the​ company's credit and collection policy.

5

Small businesses in the United States have​ $825 billion in outstanding accounts​ receivable, and​ _____ percent of them are 30 days past due.

81

What are the​ "big three" of cash​ management?

Accounts​ receivable, accounts​ payable, and inventory

Selling gift cards can improve a​ company's cash flow​ because:

All of these are reasons that gift cards improve a​ company's cash flow.

Which of the following is a sign that a small business faces an impending cash flow​ crisis?

All of these are signs that a small business faces an impending cash flow crisis.

When should a business owner turn over an account to a collection​ agency?

As a last resort after the business has made a reasonable effort to collect the​ past-due account.

Leasing rather than purchasing equipment can be an effective way for small companies to conserve cash. The owner of​ Dempsey's Pizza recently entered into a lease for a new pizza oven with Restaurant Supply Company. The lease runs for six​ years, at which time​ Dempsey's Pizza has the right to exercise an option to purchase the oven at its depreciated value. What kind of lease is​ this?

Capital

Which of the following statements concerning cash management is false​?

If a company is earning a healthy​ profit, its owner can be certain that its cash balance is also healthy.

Andover Company just sold an expensive forklift to one of its industrial customers that operates a warehouse. The contract called for the customer to pay a deposit on the forklift and to finance the remaining balance with Andover Company over 12 months. Andover​ Company's financial manager filed a​ UCC-1 statement with the appropriate county office to protect its legal rights in case the customer fails to pay. What is this agreement​ called?

Security agreement

Elaine's Gifts receives a​ $1,000 invoice from Precious Memories Inc. with the​ terms, "2/10, net​ 30." This​ is:

a cash discount.

The owner of​ Dempsey's Pizza needed a new business sign because the old one had fallen into disrepair. He contacted the owner of​ #1 Sign Designs and negotiated a contract in which​ Dempsey's Pizza would provide a certain number of catered meals in exchange for the new sign and installation by​ #1 Sign Designs. This transaction is an example​ of:

bartering.

The​ "cash map" that shows the amount and the timing of a​ company's cash receipts and cash disbursements on a​ daily, weekly, or monthly basis is​ its: A.

cash budget.

A​ company's __________ is the time lag between paying suppliers for merchandise and materials and receiving payment from customers from the sale of that merchandise or material.

cash flow cycle

The most common accounting challenge for small business owners​ is:

collecting accounts receivable.

The heart of the cash budget​ is:

forecasting sales.

A recent study by PwC reports​ that, on​ average, the typical small​ business:

pays its suppliers nearly 7 days before it receives payments from its​ customers, which has a negative impact on its cash flow.

The valley of death​ is:

the time period during which​ start-up companies experience negative cash flow as they ramp up​ operations, build their customers​ bases, and become​ self-supporting.

Camden Corporation sells to many customers on​ account, and not all of them pay their bills on time. The​ company's average collection period ratio is 51​ days, but its credit terms are​ "net 30" days. The​ company's average daily sales are​ $6,890. If a normal rate of return for the company is 9​ percent, what is the annual cost of the​ company's past-due​ accounts?

​$13,022

Purchases tend to​ _______ sales, but collection of accounts receivable​ _____ sales.

​lead; lag