Chapter 14: Cash: Lifeblood of the Business

trade discounts

% discounts from gross invoice amounts provided to encourage prompt payment

Three primary causes of cash flow problems:

1. difficulty collecting money due from customers 2. seasonal variation in sales 3. unexpected decrease in sales

Most common ways employees steal cash

1. larceny 2. skimming 3. phony disbursements

Purposes of money

1. to make exchanges 2. to keep track of value

growth trap

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

discount for prompt payment

a reduction in sales price provided to credit customers for paying outstanding amounts in a timely manner

charge back

a reduction in the bank account of a merchant by a credit card company

payables

amounts owed to vendors for merchandise or services purchased on credit

receivables

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

reconciling

an accounting process that identifies the causes of all differences between book and bank balaances

clearinghouse

an entity that processes checks and electronic fund transfers for banks and other financial organizations

short-term debt

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

bearer

any person or business entity who posesses a security

cash equivalent

assets that may be quickly converted to cash

currency

bills and coins printed by govts

factoring receivables

borrowing money secured by a firm's accounts receivable

deposits and progress payments

cash payments received before product is completed or delivered

cash receipts budget

coming into business

cash disbursements budget

coming out of a business

float

delays in movement of money among depositors and banks

timing purchases

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

demand deposits

money held in checking and savings accounts

cash

money immediately available to be spent

overdraft

negative balance in depositors bank account

commercial paper

notes issued by credit-worthy corporations

noncore projects

rev-producing tasks and activities related to, but not part of , the primary strategy of a business

noncash incentives

rewards that do not require payment of cash, such as stock options, compensating time off, or added vacation days

marketable securities

stocks and bonds that are traded on an open market

consignement

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

company book balance

the sum of cash inflows and cash outflows recorded in the firms accounting records

bank ledger balance

the sum of deposits and withdrawals recorded in a banks accounting records

bank available balance

the sum of money that has actually been received dand paid out of a depositors account

cash-to-cash style

the time that is required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale

barter

trading goods and services w/out money

gaming the payment process

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

nonsufficient funds

when a check is returned to a depositor bc writer did not have available bank balance

cash budget

when how and why cash is expected to come into the business and leave