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MGMT 3850 Ch.12 Test With Correct
Answers
Solid cash management enables a business owner to: - ANSWER 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. - ANSWER cash
Which of the following statements concerning cash management is false? - ANSWER Young companies tend to be "cash sponges," soaking up every available dollar of cash.
The first step in managing cash more effectively is: - ANSWER understanding the company's cash flow cycle.
More companies fail for the lack of ________ than for the lack of ________. - ANSWER cash; profit
Which of the following measures a company's liquidity and its ability to pay its bills and other financial obligations on time? - ANSWER cash flow
________ typically lead(s) sales; ________ typically lag(s) sales. - ANSWER Purchases; collections
A cash budget reveals important clues about how well a company ________. - ANSWER A) balances its accounts receivable and accounts payable
B) controls inventory
C) finances its growth
A firm's cash budget should: - ANSWER show the amount and timing of cash receipts and cash disbursements on a quarterly basis.
A cash budget: - ANSWER 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? - ANSWER Forecasting profits
C) Similar firms
When a firm sells goods or services on credit, the owner needs to remember that for cash budgeting purposes: - ANSWER 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 ________. - ANSWER 10-25 percent
When estimating the firm's end-of-month cash balance, the owner should first: - ANSWER 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: - ANSWER 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? - ANSWER Provide the opportunity to forgo quantity and cash discounts.
The "big three" of cash management include: - ANSWER 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. - ANSWER 90,
Small businesses selling on credit find that - ANSWER 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: - ANSWER 85$
________ small businesses take the time to conduct a credit check. - ANSWER few
An important source of credit information that collects information on small businesses that other reporting services ignore is: - ANSWER 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. - ANSWER 5 %
A collection agency typically takes ________ percent of the amounts they
An effective approach to successful collections includes: - ANSWER 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: - ANSWER security agreement
An entrepreneur can potentially improve collections by - ANSWER 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: - ANSWER 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 - ANSWER inventory
Which of the following is true about inventory management for the small business owner? - ANSWER 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? - ANSWER 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. - ANSWER bartering
The real benefit of barter for the entrepreneur is that: - ANSWER 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: - ANSWER 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
When investing surplus cash, the small business owner's key objectives should be on the ________ of the investment. - ANSWER 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: - ANSWER zero-balance account
A sweep account is a checking account that: - ANSWER automatically moves all funds in a company's checking account above a predetermined minimum into an interest-bearing account
