entr ch 13 pt 2

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

Consignment

Factoring is a method of borrowing against payables.

False

One technique to increase cash inflow is to offer discounts for delayed payments.

False

The primary advantage of bartering is that it is essentially tax-free as long as no cash is involved.

False

Mr. Hill, who runs a key-chain manufacturing unit, buys raw materials from his supplier during the first week of every month. The supplier's policy states that all payments need to be cleared within 50 days of buying the materials. This schedule ensures that Mr. Hill gets an extended period to make payments thus controlling when the payment is made. Which of the following strategies is Mr. Hill using to control cash outflow?

Timing the purchase

An often overlooked cause of cash shortages is a surplus of good news: Your business has proven to be wildly successful, and sales are growing at an exponential rate.

True

Reconciling the differences between the bank and book balances gives a corrected bank balance and a corrected book balance which are identical.

True

The best prevention method for avoiding a cash flow problem is attending to and understanding the operations of a business—its patterns of generating cash inflows and outflows.

True

According to the poll conducted by the National Federation of Independent Business (NFIB), small business faced cash flow problems because of:

delayed payments from customers.

Josh, the owner of a software company, is facing cash flow problems. To control the cash outflow, he avoids paying the bills to his vendors. After much delay, he sends a check in payment but intentionally forgets to sign the check. To prevent the cash from going out of his business, Josh is applying the strategy of _____.

gaming the payment process

Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major. Within a few months, the sales increase exponentially which results in a shortage of cash needed to expand their business. This crisis is termed _____.

growth trap

10 Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major—who manages the budgets and expenses of the business. Within a few months, David notices problems in cash flow. Although not the primary strategy of her business, Tammy takes up craft projects for kindergarten schools in an effort to increase cash inflow. This kindergarten project is an example of a(n) _____.

noncore project

Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major—who would manage the budgets and expenses of the business. Tammy buys her craft materials on credit from her supplier but clears all her debts at the end of every month. The amount that Tammy owes her supplier is referred to as _____.

payables

Maintaining an inventory helps a business to have an optimal level of cash flow by:

reducing the cost of processing orders.

Percentage of concession in gross invoice amounts provided to encourage prompt payment are called _____.

trade discounts

The most common strategy employed by small businesses for handling money shortages is _____.

using personal money