Chapter 4 - Cash and Receivables

Question 1

Cash equivalents :

Answer 1

Liquid assets - such as treasury bills, commercial paper, and money market funds - they are interest-bearing accounts that are very close to maturity.

Question 2

Electronic funds transfer :

Answer 2

System that transfers cash by electronic communication rather than by paper documents

Question 3

smart managers separate 3 key duties

Answer 3

Asset handling
Recordkeeping
Transaction approval

Question 4

Cheque :

Answer 4

Document instructing a bank to pay the designated person or business the specified amt of money

Question 5

Remittance advice :

Answer 5

An optional attachment to a cheque that indicates the payer, date and purpose of the cash payment. It’s often used as the source document for posting cash receipts or payments

Question 6

Bank statement :

Answer 6

Reports what the bank did with the customer’s cash

Question 7

Bank reconciliation :

Answer 7

A document explaining the reasons for the diff between a depositor’s records and the bank’s records act the depositor’s cash

Question 8

Deposits in transit :

Answer 8

A deposit recorded by the company but not yet recorded by its bank

Question 9

Outstanding cheques :

Answer 9

Cheques issued by the company and recorded on its books but not yet paid by its bank

Question 10

Bank collections :

Answer 10

Collections of money by the bank on behalf of a depositor

Question 11

Nonsufficient funds cheques :

Answer 11

A cheque for which the payer’s bank acc has insufficient $ to pay the cheque. NSF cheques are cash receipts that turn out to be worthless.

Question 12

Receivables

Answer 12

Monetary claims against others

Question 13

Allowance method :

Answer 13

A method of recording collection losses based on estimate of how much money the business will not collect from its customers

Question 14

Aging of receivables method :

Answer 14

A way to estimate bad debts by analyzing accounts receivable according to the length of time they have been receivable from the customer.

Question 15

Strategies to increase the current ratio :

Answer 15

1. Launch a major sales effort
2. Pay off some current liabilities before year end
3. Lie and rewrite your long term investments as current assets if you don’t plan to sell them within the next yr

Question 16

Acid test/quick ratio:

Answer 16

Tells whether entity can pay all its current liabilities if they come due immediately

Question 17

Accounts receivable turnover ratio :

Answer 17

Measures a company’s ability to collect cash from credit customers.

Question 18

Days’ sales in receivables / Collection period / Days sales outstanding :

Answer 18

Ratio of avg net acc receivable to one day’s sales.
Shows how many days’ sales remain in Acc Receivable awaiting collection.

Question 19

What comes after one another in a balance sheet ?

Answer 19

• Cash and cash equivalents come first
• Short term investments are next
• Current receivables
• merchandise inventory
• Prepaid expenses