Chapter 9 Flashcards
Net working capital
Current assets minus current liabilities
Accounts
Items accounted for on a balance sheet, income statement or cash flow statement
Accounts payable
Current debts arising from the purchases of goods and services
Marketable securities
Short-term interest-earning financial claims that can be quickly converted to cash without any significant loss of value
Transactions move
Maintaining additional cash balances to pay for predictable day-to-day cash needs
Safety motive
Maintaining additional cash balances for unforeseen day-to-day cash needs
Speculative motive
Maintaining additional cash balances in interest-earning marketable securities in order to take advantage of unexpected investment opportunities
Cash management
The management of cash-on-hand, bank balances and marketable securities
Cash receipts
Cash inflows received
Cash disbursements
Cash payments
Operating cash flows
Cash inflows received and outflows incurred as a result of the firms day-to-day operating activities
Financing cash flows
Cash inflows received and cash outflows incurred as part of the firms financing activities
Goods and services tax (GST)
A type of value-added tax collected by suppliers of goods and services on behalf of the government
Credit policy
Setting standards and guidelines that govern the management of accounts receivable. Consists of credit standards, credit terms and collection policy
Credit standards
Criteria used to evaluate the creditworthiness of customers who are seeking to purchase goods or services on credit
Credit terms
The time-frame requirements for customer repayments of trade credit
Collection policy
Procedures adopted to collect accounts receivable
Raw materials inventory
Unprocessed materials inventory held while awaiting production
Work-in-process
Partly completed goods that are still in production
Finished goods inventory
Fully completed goods available for sale
Economic order quantity (EOQ)
The optimal order quantity that minimises total holding and ordering costs
Just-in-time system
An arrangement with suppliers for inventory to be delivered at the time when it is needed for production
Trade credit
The purchase of goods or services on account, for payment at a later date
Explicit interest cost
A stated interest rate
Interest-free period
The period over which a supplier will extend credit to a customer with no explicit or implicit interest charge
Credit period
The period ending with the final date for payment of an invoice
Implicit interest cost
An implied, but instated interest charge
Cash conversion cycle (CCC)
Average length of time that cash is tied up in net working capital. Calculated as AAI + ACP - APP
Average payment period (APP)
Average length of time to pay for materials and labour consumed
Average collection period (ACP)
Average length of time between the sale of inventory and the receipt of cash for payment from the customer
Average age of inventory (AAI)
Average length of time between the purchase and sale of inventory
Accounting system
A method of recording financial transactions
