Seasonality Of Business Operations and the Cash Cucle

Question 1

Three Types of Inventory Management Strategies

Answer 1

Level Production
Peak Period Production
Combination of the first two

Question 2

Level Production

Answer 2

Borrower kepp level production. while inventory increases and contracts

Question 3

Dating of Receivable

Answer 3

Allow Customers to have special terms on their purchases

Question 4

Accrual Statement and Cycle

Answer 4

Accrual Statement would not give accurate portrayal of cash expenditures to determine seasonality. May need cash flow statement or cash budget.

Question 5

Inventory for Cash Budget

Answer 5

Current Period Payments for Material and Labor have no relationship to current period COGS,

Question 6

Limitations of Interim Statement

Answer 6

Company Prepared
Based on Estimated Inventories
Expenses are not always accrued

Question 7

When do you require interim statements

Answer 7

YOu Are Considering a Loan to a seasonal company
You don’t know if a company is seasonal
You made a loan to a company and want to follow company’s progress
The most recent statement yu have is three months old.

Question 8

General Questions for Interim Statements

Answer 8

What entities oare reported and what consolidation method was used
What time period is covered
Have there been accounting changes or reporting differences

Question 9

Balance Sheet questions for Interim Statements

Answer 9

Are amounts due from related parties classified separately from trade receivables
Is the allowance for doubtful accounts disclosed
How is inventory value determined
Are fixed assets shown with accumulated depreciation

Question 10

Interim Balance Sheet Questions 2

Answer 10

Are bank overdrafts reflected in liability accounts
Are amounts due to related parties noted separately
Are major categories of debt identified
Are taxes currently payable refundable classified

Question 11

Questions for Interim Income Statement

Answer 11

Are revenues and GOGS shown net of discounts , allowances or returns?
Is total interest expense shown
Is depreciation shown
How has company accrued for bad debt expense
Has company accrued for pension plan costs, vacation pay estimated income taxes

Question 12

Ciontingencies

Answer 12

Unused letters of credit
Provided any guaranties
Any other contingencies since last annual statement

Question 13

What if a company does not want to provide interim statements

Answer 13

Ask for special report for sales AR, and AP

Look for clues in annual statements about seasonality

Question 14

Base level of current assets are

Answer 14

Permanent. Temporary assets rise and fall as needed

Question 15

Permanent current assets should be supported by

Answer 15

Long-term debt or equity. Only Temporary assets will liquidate and be used to repay loans.

Question 16

Tot Determine peak growth in current assets

Answer 16

RMA adds AR and Inventory and determines the difference between high and low points to determine temporary growth.