Peterson Products uses a zero-balance account for cash management purposes. McLeod
Enterprises does not. If the ﬁrms are otherwise identical, one would expect McLeod to maintain a
larger total cash safety stock than Peterson.

Question

Quizplus · Accepted Answer

Since McLeod Enterprises does not use a zero-balance account, it would need to maintain a larger total cash safety stock to ensure it has enough cash on hand to cover any unexpected expenses or cash outflows. This is because without a zero-balance account, McLeod would not have automatic transfers of funds to cover deficits in its cash balance, unlike Peterson Products.

Peterson Products Uses a Zero-Balance Account for Cash Management Purposes