Small Business Management Chapter 13

Which of the following are purposes of controlling the quantity of cash outflow?

Making good buying decisions Avoiding waste

In which of the following ways can businesses collect receivables from customers?

Offering discounts for early payments Setting up a billing system

Which of the following statements regarding trade discounts are correct?

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

Identify true statements in the context of noncore projects

Such projects help provide cash when business is slow. Taking on such projects is a risky practice.

In comparison with writing paper checks, online banking transactions _____.

are less expensive

An entity that processes check and electronic fund transfers for banks and other financial organizations

clearinghouse

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

company book balance

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.

In the context of collecting receivables, which of the following should a firm owner keep in mind when giving credit to a customer?

Establishing credit terms Implementing a late fee or penalty if the due date is missed

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

It may differ significantly from the bank ledger balance

Which of the following is a primary cause of cash flow problems in small businesses?

requiring to make big capital investments periodically

A method of controlling the timing of cash outflows that is invisible to suppliers and vendors

timing purchases

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

trade discounts

Rank the following strategies for handling cash shortfalls in the order of their frequency of use.

1. Personal money 2. Borrow funds 3. Adjust scheduled purchases 4. Adjust scheduled payments

Which of the following statements regarding commercial paper are correct?

A company has to have good credit. It is considered short-term financing. It is issued to be paid to the bearer.

Which of the following statements about currency are correct?

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

What are the three most common strategies to handling cash shortfalls?

Adjust scheduled purchases Use personal money Borrow the money needed

Using a computerized accounting system, which of the following documents may be generated that will indicate the amount of cash a business needs immediately?

An accounts payable report / an accounts receivable report

Which of the following are advantages of online collections and payments?

Banks maintain records and reports of all transactions. The money received in a transaction is immediately available for use.

Which of the following is true of cash equivalents?

Businesses use cash equivalents to measure how much money is available to be spent. 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.

Which of the following statement regarding demand deposits is correct?

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

Which of the following are examples of recommended steps that employers can take to safeguard businesses from employees stealing cash?

Conduct formal audits. Run periodic credit checks.

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

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 statements regarding factoring receivables are true?

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

Which of the following is an example of gaming the payment process?

Forgetting to sign the check Stopping payment after the payment has been recorded, but not cleared Not paying the bill when it is due

Which of the following statements about the growth trap are correct?

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

Which of the following statements about barter are correct?

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

In the context of a cash disbursements budget, which of the following factors are combined to estimate the amount and timing of cash discharge?

Knowledge of payment patterns Estimate of expenses

Which of the following statements regarding marketable securities is correct?

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

Which of the following is a purpose of money?

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

Which of the following are cash flow problems faced by many small businesses?

Money coming into the businesses is too little. Money going out of the businesses is quite a lot.

Which of these represents a best cash flow practice?

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

Which of the following are the most common means by which employees steal cash from their employers?

Skimming Larceny and embezzlement Phony disbursements

Which of the following are noncash incentives?

Stock options Extra vacation days Praise Time off

Which of the following are factors that control cash outflow?

The amount of cash to be paid out The timing of cash payouts

Which of the statements regarding the comprehensive budget are correct?

The comprehensive budget is used to create pro forma financial statements. The comprehensive budget is feeds directly into the business plan. The comprehensive budget is also referred to as the master budget.

Which of the following are true about progress payments?

They are quite commonplace in the construction industry. They are received from customers.

Which of the following statements regarding consignments are correct?

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

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.

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

True

Conducting a reconciliation helps to obtain

an accurate assessment of the amount of cash a business owns

the sum of money that has actually been received and paid out of a depositor's account

bank ledger balance

The practice of trading goods and services without the use of money

bartering

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

cash

money that is immediately available to be spent

cash

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

a schedule of the amounts and timings of payments of money out of a business

cash disbursements budget

assets that may easily be converted to cash

cash equivalents

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

cash flow management

a medium or exchange accepted by the community

cash, currency or money

A reduction in a merchant's bank account by a credit card company

charge back

Which of the following payments go through a clearinghouse?

checks Electronic transfers drafts

The bills and coins printed by the government to represent money

currency

The cash-to-cash _______ , also called the _____ cycle, is the time that is required for a business to acquire resources, convert them into products or services, sell them, and receive cash.

cycle, operating

Money held in savings or checking accounts

demand deposits

Cash payments received before a product is completed or delivered

deposit and progress payments

Borrowing money secured by a firm's accounts receivable

factoring receivables

T/F: For all small businesses, the cash receipts budget is the same as the sales budget.

false

Using methods to appear to be paying bills on time, when in fact payment is being delayed or avoided

gaming the payment process

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

marketable securities

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

nonsufficient funds (NSF)

A negative balance in a depositor's bank account

overdraft

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

payables

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

the available balance is not sufficient to cover the check amount

any person or entity possessing a security, to whom commercial paper is issued

bearer

Notes issued by creditworthy corporations

commercial paper

In the context of short-term financing, which of the following is true of commercial paper?

it is fully transferable

In the context of the steps employers should take to prevent theft and embezzlement, employees who are unable to achieve set standards in a given time frame should be _____.

terminated

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

growth trap

Which of the following elements are likely to be included under the recurring payments section of a cash flow report?

wages, rent

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

consignment

any financial due that must be paid in less than one year from the date of the financial statement on which it is reported

short-term debt

True or false: Timing purchases is a technique that can provide a business with extra time to pay a bill for inventory, equipment, or services.

true