Chapter 13: Cash: Lifeblood of the Business

Which of the following statements about barter are correct? (Check all that apply.)

Some like-kind transactions for goods or services are not subject to Federal tax. It is widely practiced in the U.S. by small businesses. Barter alleviates the need for cash through trading goods and/or services.

Which of the following statements about reconciling bank balances with a business' book balances are correct? (Check all that apply.)

The owner should reconcile company book balances with bank balances to avoid cash flow problems. Service charges, direct customer payments, interest received or charged, and returned checks will affect the bank balance. Businesses should bank where online access to account information that is continuously updated is offered.

Which of the following are factors that control cash outflow? (Check all that apply.)

The timing of cash payout The amount of cash that is to be paid out

Which of the following are noncash incentives?

Extra vacation days Praise Time off Stock options

Which of the following is true of the bank available balance?

It may differ significantly from the bank ledger balance.

______ consists of stocks and bonds that are traded on an open market.

Marketable securities

___ is a medium of exchange accepted by the community.

Money

Which of the following are the most common means by which employees steal cash from their employers? (Check all that apply.)

Phony disbursements Skimming Larceny and embezzlement

Which of the following statements regarding factoring receivables are correct?

The factor usually lends between 75% and 80% of the value of accounts receivable. Factoring a business' receivables is considered one of the more expensive financing methods. A factor charges a fee of around 5% of the amount.

A reduction in a merchant's bank account by a credit card company is called a(n) ______.

charge back

Cash is

money that is immediately available to be spent.

Customers may overdraft their accounts by paying a check when _____.

the available balance is not sufficient to cover the check amount

A reduction in the sales price provided to credit customers for paying outstanding amounts in a timely manner is referred to as a ___ for prompt payment.

discounts

_____ are known to charge back a sale amount in order to remove it from a business's account if situations such as fraud or customer challenge arise.

Credit card clearing services

For all small businesses, the cash receipts budget is the same as the sales budget.

False

In the context of a cash disbursements budget, which of the following factors are combined to predict the amount and timing of cash discharge? (Check all that apply.)

Knowledge of payment patterns Estimate of expenses

Which of the following statements regarding demand deposits are correct? (Check all that apply.)

Owners may withdraw money on demand by using a check, draft, currency, or electronic transfer. Demand deposits make up most of the noncurrency cash. Checking and savings accounts are the two most common forms of demand deposits.

Which of the following statements regarding discounts for prompt payment are correct?

They may be as much as 2% if the invoice is paid within 5 to 10 business days. They are used to motivate customers to pay their bills in full in a timely manner.

Amounts that are owed to vendors for merchandise or services purchased on credit are known as ______.

payables

An accounting process that identifies the causes of all difference between book and bank balances is known as ______.

reconciling

Business can earn cash flow from operations, investing and

financing

______ is a financial crisis that is caused by a business growing faster than it can be financed.

Growth trap

A reduction in the sales price provided to credit customers for paying outstanding amounts in a timely manner is referred to as a ___ for prompt payment

discounts

The bank knows the amount of any checks that were returned because of nonsufficient funds (NSF).

True

Payables are

amounts that are owed to vendors for merchandise or services purchased on credit.

The bills and coins printed by governments to represent money are called

currency

Rewards that do not require payments of cash are called incentives

noncash

Amounts that are owed to a business for merchandise that was sold on credit are called

receivables

______ is planning and tracking the amounts and timing of money to be received and paid during the business cycle.

Cash flow management

Which of the following are sources of cash?

Investment that a business has made, such as in stocks, bonds, and land. Selling a business' products and services & collecting cash from customers. Through financing through debt or equity.

Which of the following statements regarding marketable securities are correct?

Marketable securities are bought and sold on major exchanges, such as the NASDAQ. They represent either ownership or debt of publicly held firms. Government issued debts in the form of bonds, notes, and bills are marketable securities.

Which of the following represents a best cash flow management practice? (Check all that apply.)

There should be enough cash available to meet a business' needs. Owners should be able to obtain cash quickly from a variety of sources. Accounts receivables should be closely monitored for late payments. Owners should understand how and when the business uses its cash.

Which of the following statements regarding trade discounts are correct? (Check all that apply.)

These discounts are given by suppliers and vendors to encourage customer to pay on time. The rule of thumb for a trade discount is 1% or greater if the billing period is less than 30 days. One should compare the annual effective interest rate of the discount to the cost of borrowing from other sources.

Assets that may be quickly converted to cash are called

cash equivalents

Money held in checking and savings accounts are/is called ______.

demand deposits

Business can earn cash flow from operations, investing and ___

financing

Which of the following is a purpose for money? (Check all that apply.)

Measure the value of tangible and intangible things. Facilitate exchange of unlike assets. Keep track of wealth.

______ budget is a schedule of the amounts and timings of the receipt of cash into a business.

cash receipts

An entity that processes check and electronic fund transfers for banks and other financial organizations is called a ______.

clearinghouse

Using a computerized accounting system, which of the following documents may be generated that will indicate the amount of cash a business needs immediately? (Check all that apply.)

An accounts payable report An accounts receivable report

Which of the following reasons account for discrepancies in a bank depositor's bank ledger balance and the actual value of cash held by the bank?

Delayed collection of deposits Delayed cash transfers

Which of the following transactions go through a clearinghouse? (Check all that apply.)

Electronic transfers checks drafts

Which of the following statements regarding cash equivalents are correct? (Check all that apply.)

Examples of cash equivalents are marketable securities, commercial paper, and debt investments that mature in less than three months. They are assets that may be turned into cash in as little as a few hours. Businesses use cash equivalents to measure how much money is available to be spent.

Which of the following are factors that control cash outflow? (Check all that apply.)

The amount of cash that is to be paid out The timing of cash payout

A ______ budget is a schedule of the amounts and timings of the receipt of cash into a business.

cash

The company book balance reflects a business' internal accounting record of all transactions that affect ______.

cash

The ______ identifies when, how, and why cash is expected to coming into a business, and when, how, and why it is expected to leave.

cash budget

The ___ is a schedule of the amounts and timings of payments of money out of a business.

cash disbursement budget

Assets that may be quickly converted to cash are called Blank______.

cash equivalents

The sum of the cash inflows and outflows recorded in a firm's accounting records is the ______ balance.

company book

A negative balance in a depositor's bank account is called

overrdraft

Receivables are

amounts that are owed to a business for merchandise that was sold on credit.

Which of the following statements about the growth trap are correct? (Check all that apply.)

Businesses that grow at exponential rates often experience the growth trap. Too much good news may contribute to a growth trap because of a cash shortage. Growing produces more money, but cash is needed right away to grow, thus the business gets trapped.

A situation that occurs when a check is returned to a depositor because the writer of the check did not have a bank available balance equal to or greater than the amount of the check is called ___ or NSF

nonsufficient funds

Which of the following statements regarding the cash budget are correct?

Business owners estimate expected incomes and expenses and when these transactions will occur in order to create the cash budget. It is the key to cash planning for small businesses. All business budgeting begins with a forecast of sales.

Which of the following statements about consignments are correct? (Check all that apply.)

They are the norm in operating art galleries. Many industries like the salty snacks, used furniture, and sporting goods use consignments. An advantage is that they do not have to be paid for until sold.

Percentage discounts from gross invoice amounts provided to encourage prompt customer payment is called

trade discounts

Which of the following are purposes of controlling the quantity of cash outflow? (Check all that apply.)

Making good buying decisions Avoiding waste

______ is the practice of accepting goods for resale, without taking ownership of them and without being responsible to pay prior to their being sold.

Consignment

Which of the following elements are likely to be included under the recurring payments section of a cash flow report? (Check all that apply.)

Wages Rent

The ______ balance is the sum of money that has actually been received and paid out of a depositor's account.

bank available

The ______ balance is the sum of deposits and withdrawals recorded in a bank's accounting records.

bank ledger

The practice of trading goods and services without the use of money is known as

barter

The most prevalent way employees steal cash from employers is through larceny and embezzlement.

False

Which of the following statements regarding currency are correct? (Check all that apply.)

More than half of U.S. currency is held outside the U.S. According to the Federal Reserve, there is $1.7 trillion in circulation as of January 31, 2019. Currency consists of both bills and coins.

The ___ ___ ___ is a schedule of the amounts and timings of payments of money out of a business.

cash disbursements budget