Question 1

Which of the following measures a company's liquidity and its ability to pay its bills and other financial obligations on time?
A)Cash budget
B)Cash flow
C)Cash management
D)All of the above

Accepted Answer

Cash flow measures a company's ability to pay its bills and other financial obligations on time. Cash budget and cash management are related concepts, but do not directly measure liquidity.

Question 2

Which of the following is not a step in creating a cash budget?
A)Determining an adequate minimum cash balance
B)Forecasting profits
C)Forecasting cash receipts
D)Forecasting cash disbursements

Accepted Answer

Forecasting profits is not a step in creating a cash budget. A cash budget only deals with cash inflows and outflows, not overall profits. The other three options (determining an adequate minimum cash balance, forecasting cash receipts, and forecasting cash disbursements) are all steps in creating a cash budget.

Question 3

What factors can drastically affect a company's cash flow?
A)Increased competition
B)Economic swings
C)Normal seasonal variations
D)All of the above

Accepted Answer

All of the factors listed, increased competition, economic swings, and normal seasonal variations, can have a significant impact on a company's cash flow. Increased competition can lead to lower sales and reduced cash inflows. Economic swings such as recessions can lead to decreased consumer spending and lower sales, as well as reduced access to credit and funding. Normal seasonal variations can result in fluctuating sales and cash inflows depending on the industry and products or services offered. Therefore, all of these factors can drastically affect a company's cash flow.

Question 4

________ typically lead(s)sales; ________ typically lag(s)sales.
A)Production; receivables
B)Collections; purchases
C)Receipts; production
D)Purchases; collections

Accepted Answer

The answer of ________ typically lead(s)sales; ________ typically lag(s)sales.
A)Production; receivables
B)Collections;...

Question 5

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.
D)All of the above

Accepted Answer

Solid cash management includes all of the above factors. By adequately meeting cash demands, businesses can avoid liquidity issues and missed opportunities. Avoiding unnecessary cash balances can help prevent inflation and decrease idle cash holdings. Stretching profit-generating power by optimizing cash usage can help increase profitability and cash flow.

Question 6

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?
A)Determining an adequate minimum cash balance
B)Forecasting sales
C)Forecasting cash receipts
D)Forecasting cash disbursements

Accepted Answer

The answer of Jane is arguing with Joan about how...

Question 7

A cash budget is only as accurate as the ________ forecast from which it is derived.
A)profit
B)receivables
C)income
D)sales

Accepted Answer

A cash budget is based on sales forecast because sales forecast determines the expected inflow of cash. Without an accurate sales forecast, the cash budget will not be reliable.

Question 8

The fact that the cash budget illustrates the flow of cash in a business helps the owner to:
A)accelerate accounts payable payments.
B)get a seasonal line of credit rather than an annual line of credit.
C)slow accounts receivable payments.
D)track the effects of depreciation and bad debts.

Accepted Answer

The answer of The fact that the cash budget illustrates...

Question 9

It is recommended that new business owners estimate cash disbursements as best they can and then add on another ________.
A)3-4 percent
B)5-10 percent
C)10-25 percent
D)25-35 percent

Accepted Answer

The answer of It is recommended that new business owners...

Question 10

A firm's cash budget should:
A)be prepared on a monthly basis for at least one year in advance and cover all seasonal fluctuations.
B)cover a longer planning horizon when a firm's pattern is highly variable.
C)show the amount and timing of cash receipts and cash disbursements on an annual basis.
D)show the amount and timing of cash receipts and cash disbursements on a quarterly basis.

Accepted Answer

The answer of A firm's cash budget should:
A)be prepared on...

Question 11

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.
D)All of the above

Accepted Answer

A cash budget is based on the cash method of accounting, which focuses on tracking cash inflows and outflows rather than accruals. It is essentially a "cash map" that shows the amount and timing of cash flowing into and out of the business over a given period of time. However, since it is based on forecasts, it may not be completely accurate. Therefore, all the given options are correct.

Question 12

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
D)All of the above

Accepted Answer

All of the above options can provide useful information for preparing a sales forecast. Past records can provide insight into sales trends and patterns. Trade associations and the Chamber of Commerce can provide industry data and market research. Examining similar firms can provide benchmark data and competitive analysis.

Question 13

The first step in managing cash more effectively is:
A)having an adequate cash reserve for emergency expenditures.
B)rapid payment of accounts payable.
C)speeding up payment of accounts receivable.
D)understanding the company's cash flow cycle.

Accepted Answer

Understanding the company's cash flow cycle is the first step in managing cash more effectively. This includes analyzing the inflow and outflow of cash and identifying any bottlenecks in the cycle. Once this is understood, measures can be taken such as speeding up payment of accounts receivable and delaying payment of accounts payable to improve the cash position of the company. Having an adequate cash reserve and rapid payment of accounts payable are also important, but understanding the cash flow cycle is the crucial first step.

Question 14

More companies fail for the lack of ________ than for the lack of ________.
A)cash; profit
B)profit; cash
C)net revenue; gross revenue
D)vision; profit

Accepted Answer

The answer of More companies fail for the lack of...

Question 15

When a firm sells goods or services on credit,the owner needs to remember that for cash budgeting purposes:
A)the sale may be immediately posted as if it has been collected.
B)the sale should be recorded in the month it was made.
C)she must account for a delay between the sale and the actual collection of the proceeds.
D)such a transaction counts as a cash disbursement.

Accepted Answer

When a firm sells goods or services on credit, there is a delay between the sale and the actual collection of the proceeds. Therefore, the owner must account for this delay when budgeting for cash flow. The sale should still be recorded in the month it was made, but the actual cash inflow may not occur until a later date.

Question 16

When estimating the firm's end-of-month cash balance,the owner should first:
A)determine the cash balance at the beginning of the month.
B)add up total cash receipts and subtract cash on hand.
C)review the accounts receivable.
D)make a daily list of cash disbursements.

Accepted Answer

To accurately estimate the firm's end-of-month cash balance, the owner should start by determining the cash balance at the beginning of the month. This serves as the starting point for tracking the inflows and outflows of cash throughout the month. Without knowing the starting point, it can be difficult to accurately estimate the end-of-month cash balance. While reviewing accounts receivable and creating a list of cash disbursements can help provide a clearer picture of cash flow, they are secondary to starting with an accurate beginning cash balance. Adding up total cash receipts and subtracting cash on hand may also be helpful, but it should be done after the starting cash balance is established.

Question 17

Which of the following statements concerning cash management is false?
A)Cash is the most important,yet least productive,asset a small business owns.
B)Young companies tend to be "cash sponges," soaking up every available dollar of cash.
C)Fast-growing businesses are least likely to experience shortages.
D)Cash management involves forecasting,collecting,disbursing,investing,and planning for a company's cash needs.

Accepted Answer

Fast-growing businesses are actually more likely to experience shortages because they require more cash to finance their growth.

Question 18

________ is the most important,yet least productive,asset that a small business owns.
A)Profit
B)Cash
C)Inventory
D)Accounts receivable

Accepted Answer

Cash is considered the most important asset for a small business as it allows the business to pay for expenses, invest in growth opportunities and cover unexpected costs. However, cash is also the least productive asset as it does not generate any return on investment. Inventory, accounts receivable and profit can all generate revenue and contribute to the growth of the business.

Question 19

On March 10th,a business owner receives an invoice from a supplier for $416.27 with "net 30" credit terms marked on it.On April 7th,the owner writes the supplier a check for $416.27 and mails it.When would this cash disbursement show up on the company's cash budget?
A)March 10th
B)March 30th
C)April 7th
D)April 10th

Accepted Answer

The answer of On March 10th,a business owner receives an...

Question 20

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
D)All of the above

Accepted Answer

A cash budget takes into account a company's expected cash inflows and outflows, which can reveal clues about the company's ability to balance its accounts receivable and accounts payable, control inventory, and finance its growth. Therefore, all of the options are correct.

Quiz 12: Managing Cash Flow

Which of the following measures a company's liquidity and its ability to pay its bills and other financial obligations on time?

Which of the following is not a step in creating a cash budget?

What factors can drastically affect a company's cash flow?

typically lead(s) sales; typically lag(s) sales.

Solid cash management enables a business owner to:

A cash budget is only as accurate as the ________ forecast from which it is derived.

The fact that the cash budget illustrates the flow of cash in a business helps the owner to:

It is recommended that new business owners estimate cash disbursements as best they can and then add on another ________.

A firm's cash budget should:

A cash budget:

Which of the following would be a potential source of information for preparing a sales forecast?

The first step in managing cash more effectively is:

More companies fail for the lack of than for the lack of .

When a firm sells goods or services on credit,the owner needs to remember that for cash budgeting purposes:

When estimating the firm's end-of-month cash balance,the owner should first:

Which of the following statements concerning cash management is false?

________ is the most important,yet least productive,asset that a small business owns.

On March 10th,a business owner receives an invoice from a supplier for $416.27 with "net 30" credit terms marked on it.On April 7th,the owner writes the supplier a check for $416.27 and mails it.When would this cash disbursement show up on the company's cash budget?

A cash budget reveals important clues about how well a company ________.