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MGMT 3850 Ch.12

Solid cash management enables a business owner to:
A) adequately meet the cash demands of the business.
B) avoid retaining unnecessarily large cash balances.
C) stretch the profit-generating power of each dollar the business owns.
________ is the most important, yet least productive, asset that a small business owns.
Which of the following statements concerning cash management is false?
Young companies tend to be “cash sponges,” soaking up every available dollar of cash.
The first step in managing cash more effectively is:
understanding the company’s cash flow cycle.
More companies fail for the lack of ________ than for the lack of ________.
cash; profit
Which of the following measures a company’s liquidity and its ability to pay its bills and other financial obligations on time?
cash flow
________ typically lead(s) sales; ________ typically lag(s) sales.
Purchases; collections
A cash budget reveals important clues about how well a company ________.
A) balances its accounts receivable and accounts payable
B) controls inventory
C) finances its growth
A firm’s cash budget should:
show the amount and timing of cash receipts and cash disbursements on a quarterly basis.
A cash budget:
A) is based on the cash method of accounting.
B) is a “cash map,” showing the amount and the timing of cash flowing into and out of the business over a given period of time.
C) will never be completely accurate since it is based on forecasts.
Which of the following is not a step in creating a cash budget?
Forecasting profits
A cash budget is based on the cash method of accounting, meaning that cash receipts and cash disbursements are recorded in the forecast only when ________ is expected to take place.
the cash transaction
Jane is arguing with Joan about how much cash their small retail outlet needs as they prepare their cash budget. Jane feels that with the Christmas season coming, their busiest time, they need more cash available while Joan feels they do not because their sales volume will be up significantly. Jane and Joan are discussing which step of the cash budgeting process?
Determining an adequate minimum cash balance
A cash budget is only as accurate as the ________ forecast from which it is derived.
What factors can drastically affect a company’s cash flow?
A) Increased competition
B) Economic swings
C) Normal seasonal variations
Which of the following would be a potential source of information for preparing a sales forecast?
A) Past records
B) Trade associations and the Chamber of Commerce
C) Similar firms
When a firm sells goods or services on credit, the owner needs to remember that for cash budgeting purposes:
she must account for a delay between the sale and the actual collection of the proceeds.
It is recommended that new business owners estimate cash disbursements as best they can and then add on another ________.
10-25 percent
When estimating the firm’s end-of-month cash balance, the owner should first:
determine the cash balance at the beginning of the month.
The fact that the cash budget illustrates the flow of cash in a business helps the owner to:
get a seasonal line of credit rather than an annual line of credit.
By planning cash needs ahead of time, a small business is able to achieve all but which of the following?
Provide the opportunity to forgo quantity and cash discounts.
The “big three” of cash management include:
accounts receivable, accounts payable, and inventory.
Experts estimate that ________ percent of industrial and wholesale sales are on credit, while ________ percent of retail sales are on credit.
Small businesses selling on credit find that
it is expensive, requires a great deal of effort, and it is risky.
The cost to check a potential customer’s credit at a reporting service starts at:
________ small businesses take the time to conduct a credit check.
An important source of credit information that collects information on small businesses that other reporting services ignore is:
National Association of Credit Management.
According to the American Collectors Association, if a business is writing off more than ________ of its sales as bad debts, it needs to tighten its credit and collection policies.
5 %
A collection agency typically takes ________ percent of the amounts they collect on past due accounts
25 to 30
To encourage credit customers to pay invoices promptly, a business owner should:
A) ensure that all invoices are clear, accurate, and timely.
B) state clearly a description of the goods or services purchased and an account number.
C) include a telephone number and a contact person in case the customer has a question or a dispute.
Once a small business has established a firm written credit policy and has clearly communicated it, the next step in building an effective credit policy is to:
send invoices promptly
Once a credit account becomes past due, a small business owner should:
send a “second notice” letter requesting immediate payment
According to the American Collector’s Association, only ________ of accounts more than 90 days delinquent will be paid voluntarily.
5 percent
The Fair Debt Collection Practices Act prohibits business owners from:
harassing people who are past due.
An effective approach to successful collections includes:
timely, well-communicated payment expectations with well-documented records
A contract in which a business selling an asset on credit gets a security interest in that asset (the collateral), protecting its legal rights in case the buyer fails to pay, is a:
security agreement
An entrepreneur can potentially improve collections by
A) contacting the customer once the bill becomes past due to verify they have received the bill and that it is accurate.
B) negotiate payment if the customer is unable to pay the full amount on time.
C) developing a rapport with the customer that will lead to prompt payment
Efficient cash managers:
set up a payment calendar in order to both pay on time and take advantage of cash discounts for early payment.
For product-based businesses, ________ often represents their largest capital investment
Which of the following is true about inventory management for the small business owner?
Inventory is the largest capital investment for most businesses but few owners use any formal means for managing it.
Only about ________ percent of a typical business’ inventory turns over quickly.
Which of the following inventory management techniques would help a business owner make the best use of his company’s cash?
A) Avoid overbuying inventory.
B) Schedule inventory deliveries at the latest possible date.
C) Purchase goods from the fastest suppliers who can meet quality standards to keep inventory levels low.
Exchanging goods and services for other goods and services, or ________, is an effective way for a small business to conserve cash.
The real benefit of barter for the entrepreneur is that:
it is “paid” for at the wholesale cost of doing business, yet it is credited at the retail price
Barter offers business owners the benefit of:
A) buying materials, equipment, and supplies without spending valuable cash on them.
B) transforming slow-moving inventory into much-needed goods and services.
C) “paying” for goods and services at wholesale cost and getting credit for retail price.
Which of the following is an effective way to trim overhead?
Negotiate fixed loan payments to coincide with company cash flow.
Which of the following statements concerning leasing is true?
A) Leasing is an “off-the-balance-sheet” method of financing assets.
B) Although total lease payments for an asset are greater than those on a conventional loan, most leases do not require large capital outlays as down payments.
C) Leasing gives business owners access to equipment even when they cannot borrow the money to buy it.
Leasing allows business owners to forecast cash flows more ________ because lease payments are ________ amounts paid over a particular time period.
accurately; fixed
“Stick to what you are good at and ________ everything else” is an approach to reduce overhead costs.
out source
Rather than build the current year budget on increases from the previous year’s budget, ________ evaluates the necessity of every item.
zero-based budgeting
When investing surplus cash, the small business owner’s key objectives should be on the ________ of the investment.
liquidity and safety
A checking account that never has idle funds-because it draws funds from an interest-bearing master account to cover checks written-is called a:
zero-balance account
A sweep account is a checking account that:
automatically moves all funds in a company’s checking account above a predetermined minimum into an interest-bearing account

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