Deck 6: Managing and Reporting Working Capital

Question 1

____________________ is the excess of a business' current assets over its current liabilities.

Answer 1

Working capital

Question 2

____________________ is calculated by subtracting current liabilities from current assets.

Answer 2

Working capital

Question 3

The term working capital represents the net resources that managers have to work with in the business' ____________________ ____________________.

Answer 3

day-to-day operations

Question 4

An ____________________ is a set of policies and procedures that direct how employees should perform a business' activities.

Question 5

A business' ____________________ includes money on hand, deposits in cheque and savings accounts, and cheques and credit card invoices that it has received from customers but not yet deposited.

Question 6

For cash sales, the most important control is the proper use of a ____________________.

Question 7

The fact that customers receive a copy of the ____________________ helps to ensure that each sale is entered into the cash register.

Question 8

The basic rule for good internal control over cash payments is to have all payments ____________________ before they are made.

Question 9

Each month the bank sends the business a ____________________ that summarises the business' banking activities during the month.

Question 10

A business prepares a ____________________ to analyse the difference between the ending cash balance in its accounting records and the ending cash balance reported by the bank in the bank statement.

Question 11

Cash is usually the first asset listed on the balance sheet because it is the most _______________ current asset.

Question 12

____________________ are the amounts owed to a business by customers from previous credit sales

Question 13

Credit card sales are not the same as an accounts receivable, meaning credit card receipts are often referred to as ____________________.

Question 14

A simple control over accounts receivable is to have potential customers complete a ____________________ prior to letting them charge.

Question 15

____________________ is the merchandise a retail business holds for resale.

Question 16

A ______________ ____________ is a document authorising a supplier to ship the items listed on the document at a specific price.

Question 17

One physical control over inventory is to restrict ____________________ to it.

Question 18

Regardless of the inventory method used, periodic or perpetual, a business should always perform a ____________________ of inventory.

Question 19

____________________ are the amounts that a business owes to its suppliers for previous credit purchases of inventory and supplies.

Question 20

A simple control over accounts payable is to limit the number of employees authorised to make ____________________.

Question 21

If the accounts payable balance is too large in relation to business' current assets, the business will begin to experience ____________________ problems.

Question 22

The _____________ of aggressive working capital management has been questioned by some business leaders and critics.

Question 23

Accounting issues are the basis for three of the top 10 reasons why small businesses fail.

Question 24

Working capital is the excess of total assets over total liabilities.

Question 25

It is possible that a business could have negative working capital should current assets be less than current liabilities.

Question 26

Working capital is a liquidity issue.

Question 27

Other terms for working capital management are operating capital management and short-term financial management.

Question 28

Other terms for working capital management are investment capital management and long-term financial management.

Question 29

Working capital management is a balancing act between having enough liquidity versus having so much excess cash that profitability is reduced.

Question 30

An appropriate amount of working capital is enough to finance the business' long-term growth plus an extra amount in case something happens.

Question 31

A business' cash includes cheque and credit card invoices, even if they have not yet been deposited.

Question 32

The most likely asset to be stolen in a business is cash.

Question 33

For cash sales, the most important cash procedure is the proper use of a cash register.

Question 34

A business should deposit all cash receipts into the bank once a week.

Question 35

A basic internal control over cash payments is to make sure payments are only made for approved purchases, supported by proper documentation.

Question 36

Bank reconciliations enable the business to report the correct cash balance on its income statement.

Question 37

A deposit in transit is a cash deposit that has not yet been included in the Cash Account.

Question 38

The Cash Account is the amount of money under the control of one employee used for making small cash payments for a business.

Question 39

Cash is usually the first non-current asset listed on the balance sheet as it is the most liquid.

Question 40

The total amount of accounts receivable less the expected amount of uncollectible accounts is called the net realisable value.

Question 41

Credit terms of 2/10, net/30 means a 20% discount if paid in 30 days.

Question 42

Accounts receivable can provide a greater increase in profit if credit sales are monitored properly.

Question 43

One advantage of credit sales is that having accounts receivable does not require significant management effort.

Question 44

Cost of goods sold is the merchandise a retail business holds for resale.

Question 45

The cost of goods sold would appear on the income statement while the cost of the ending inventory would appear on the balance sheet.

Question 46

The first in first out (FIFO) method of inventory calculation allocates costs to cost of goods sold by assigning each unit sold the cost to the business of purchasing that particular unit.

Question 47

Adopting first in first out (FIFO) or specific identification method of inventory calculation will not impact cost of goods sold and ending inventory balances.

Question 48

The amount of accounts payable that a business owes is listed as a current asset on the balance sheet.

Question 49

To facilitate transactions efficiently all employees should be able to execute a purchase order.

Question 50

Working capital management is only important when a business has a relatively large amount of capital.

Question 51

A business' working capital is:

A) the excess of its current assets over its current liabilities.
B) its gross profit.
C) the difference between total assets and total liabilities.
D) the total owners' equity minus retained earnings.

Question 52

Which of the following current assets is most liquid?

A) accounts payable.
B) inventory.
C) cash account.
D) accounts receivable.

Question 53

Which of the following is NOT one of the reasons cash is the asset most likely to be stolen from a business?

A) It has no recorded identification marks.
B) It is difficult to prove that it has been stolen.
C) It is difficult to prove who stole it.
D) It is the most valuable asset for a business.

Question 54

Requiring an employee who does not handle accounting records to open the mail is an example of:

A) separation of duties.
B) credit investigations.
C) purchase order authorisation.
D) bank reconciliation.

Question 55

Which of the following is a good internal control for cash payments?

A) Payments to suppliers should be made as quickly as possible.
B) An experienced accountant should have total responsibility for all cash payment functions.
C) Payments should be authorised before they are made.
D) Supporting documentation should be destroyed immediately after payment to avoid incorrectly paying twice.

Question 56

A cash receipt that the business has added to its cash account, but that the bank has not added to the business' account is a:

A) deposit made directly by the bank.
B) NSF cheque.
C) deposit in transit.
D) pending payment.

Question 57

Which of the following would NOT be a reason for the difference between the bank balance in a business' accounting records and the balance per the bank statement?

A) deposits in transit.
B) outstanding cheques.
C) charges made directly by the bank.
D) the bank balance at the end of the previous period.

Question 58

Which of the following pieces of information would you not expect a potential credit customer to provide in a credit application form?

A) the name of their spouse and their personal bank account details.
B) the name of their bank.
C) a list of assets.
D) a list of other debts.

Question 59

Which of the following is NOT a method for calculating the dollar value for inventory?

A) First in first out (FIFO).
B) Weighted average.
C) Specific identification.
D) Cost of goods sold.

Question 60

What is an internal control structure?

Question 61

What are the best ways to prevent both intentional and unintentional losses of cash?

Question 62

What controls should a business establish for cash sales?

Question 63

What are the steps in preparing the bank reconciliation?

Question 64

What is a petty cash fund?

Question 65

What simple controls should be established over accounts receivable?

Question 66

Why is accounting for, controlling, and reporting on inventory important?

Question 67

Describe six inventory controls.

Question 68

Describe the specific identification method of calculating inventory balances.

Question 69

Describe simple controls that might be established over accounts payable.

Question 70

An examination of the accounting records and the bank statement of Johnson Business revealed the following:
$\begin{array}{lr}\text { Balance in Johnson's cash account } & \$ 25000 \\\text { Balance according to the bank } & \$ 30000 \\\text { Outstanding cheques } & \$ 7600 \\\text { Deposits in transit } & \$ 17500 \\\text { Bank fees } & 100 \\\text { Direct deposits to the bank } & \$ 15000\end{array}$
Prepare a bank reconciliation, and identify the items that require adjustments to Johnson's records.

Question 71

An examination of the accounting records and the bank statement of Garrison Business revealed the following:
$$\begin{array} { l l } \text { Balance in Garrison's cash account } & \$ 50000 \\\text { Balance according to the bank } & \$ 45000 \\\text { Outstanding cheques } & \$ 8000 \\\text { Deposits in transit } & \$ 22500 \\\text { Bank fees } & \$ 500 \\\text { Direct deposits to the bank } & \$ 10000\end{array}$$ Prepare a bank reconciliation and identify the items that require adjustments to Garrison's records.

Question 72

A business is reconciling its bank accounts. Indicate whether each of the following items would be added to (+), subtracted from (-), or have no effect on (0) the business' cash balance and the bank balance in determining the reconciled cash balance.
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Business } \\\text { Cash Balance }\end{array} & \begin{array} { c } \text { Bank } \\\text { Balance }\end{array} \\\hline \text { Deposits in transit } & & \\\hline \text { Charges made directly by the bank } & & \\\hline \text { The business' over-recording of a cheque that it wrote } & & \\\hline \text { Outstanding cheques } & & \\\hline \text { Deposits made directly by the bank } & & \\\hline \text { The bank's over-recording of a deposit } & & \\\hline\end{array}$$