Assignment 6

Cash Flow
Total mark: 1
Answer the following questions about the cash flow
statement
Choose the correct answer
1) 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.
Answer: D
2) ________ is simply a "cash map" which shows the amount and the timing of cash receipts and
cash disbursements over time.
A) The income statement
B) A balance sheet
C) A cash budget
D) The pro forma
Answer: C
3) The heart of the cash budget is the ________ forecast.
A) cash receipts
B) cash disbursements
C) sales
D) receivables
Answer: C
4) Generally speaking, most small business owners tend to:
A) overestimate cash disbursements.
B) underestimate cash receipts.
C) underestimate cash disbursements.
D) try to count unpaid cash disbursements as cash that can be spent.
Answer: C

5) The "big three" of cash management include:

A) accounts receivable, overhead, and inventory.
B) accounts payable, accounts receivable, and taxes.
C) accounts receivable, accounts payable, and inventory.
D) accounts receivable, prices, and expenses.
Answer: C

6) When managing your accounts payable, as a small business owner you should:
A) take advantage of any float you have before your check is cashed.
B) send second notices when payables are only 15 days past due.
C) pay payables as early as possible.
D) stretch out all payables as long as possible.
Answer: D
7) When investing surplus cash, the small business owner's key objectives should be:
A) high yields.
B) current income.
C) liquidity and safety.
D) long-term yield.
Answer: C
8) Entrepreneurs can trim costs by:
A) avoiding nonessential outlay.
B) looking for simple ways to cut costs.
C) establishing an internal security and control system.
D) All of the above
Answer: D

State whether the sentences are true or false

9) Carrying too much inventory decreases the chances that a business will run out of cash.
Answer: F
10) One highly effective cash management strategy is to schedule inventory deliveries as early as
possible to speed your payment of accounts payable.
Answer: F

11) Small business managers need not be concerned about investing surplus cash since small
amounts of cash sitting around for a few days or weeks are not worth investing.
Answer: F
112) When investing surplus cash, the small business owner should seek the highest returns
possible on the money.
Answer: F

13) The longer a company's cash flow cycle, the more likely it is to encounter a cash crisis.
Answer: T

14) Carrying too much inventory decreases the chances that a business will run out of cash.
Answer: F
15) One disadvantage of carrying too much inventory is controlling and managing the inventory.
Answer: T