Which of the following statements is CORRECT?

A) Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), hence depreciation is set forth on a separate line in the cash budget.
B) If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of each month, then a regular monthly cash budget will be misleading. The problem can be corrected by using a daily cash budget.
C) Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.
D) If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net
30 to net 60.
E) If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% of its sales in September, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in October than in August

Question

Which of the following statements is CORRECT?

A)	Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), hence depreciation is set forth on a separate line in the cash budget.
B)	If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of each month, then a regular monthly cash budget will be misleading.	The problem can be corrected by using a daily cash budget.
C)	Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.
D)	If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net
30 to net 60.
E)	If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% of its sales in September, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in October than in August

Quizplus · Accepted Answer

A regular monthly cash budget may not accurately reflect cash flow timing if inflows and outflows occur at different times within the month. A daily cash budget can provide a more precise view.

Which of the Following Statements Is CORRECT