MGMT 3850 CHAPTER 12 HOMEWORK QUESTIONS AND ANSWERS

MGMT 3850 CHAPTER 12
HOMEWORK QUESTIONS AND
ANSWERS
Essentials of Entrepreneurship & Small Business Mgmt., 7e (Scarborough)
Chapter 12 Managing Cash Flow

1) 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
Answer: D
Diff: 1 Page Ref: 429
AACSB: Reflective Thinking
Learning Obj.: 1

2) ________ is the most important, yet least productive, asset that a small business owns.
A) Profit
B) Cash
C) Inventory
D) Accounts receivable
Answer: B
Diff: 2 Page Ref: 429
AACSB: Analytic Skills
Learning Obj.: 1

3) 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.
Answer: C
Diff: 2 Page Ref: 429
AACSB: Analytic Skills
Learning Obj.: 1

4) 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
1

,Diff: 2 Page Ref: 430
AACSB: Analytic Skills
Learning Obj.: 1




2

,5) 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
Answer: A
Diff: 2 Page Ref: 423
AACSB: Reflective Thinking
Learning Obj.: 2

6) 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
Answer: B
Diff: 1 Page Ref: 432
AACSB: Analytic Skills
Learning Obj.: 2

7) ________ typically lead(s) sales; ________ typically lag(s) sales.
A) Production; receivables
B) Collections; purchases
C) Receipts; production
D) Purchases; collections
Answer: D
Diff: 2 Page Ref: 433
AACSB: Analytic Skills
Learning Obj.: 2

8) 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
Answer: D
Diff: 1 Page Ref: 433
AACSB: Analytic Skills
Learning Obj.: 4




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, 9) 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.
Answer: D
Diff: 3 Page Ref: 433
AACSB: Analytic Skills
Learning Obj.: 3

10) 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
Answer: D
Diff: 2 Page Ref: 433
AACSB: Analytic Skills
Learning Obj.: 3

11) 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
Answer: B
Diff: 2 Page Ref: 433
AACSB: Analytic Skills
Learning Obj.: 3

12) A cash budget is based on the cash method of accounting, meaning that cash receipts and
cash disbursements are recorded in the forecast only when ________ is expected to take place.
A) the transaction is predicted
B) a credit sale
C) the cash transaction
D) projections are
Answer: C
Diff: 3 Page Ref: 434
AACSB: Analytic Skills
Learning Obj.: 3




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