92) According to the National Association of Credit Management, receivables are only the
second most important item on the balance sheet.
Topic: Accounts Receivable
AACSB: Analytic Skills
93) The first line of defense against bad debt losses is to have a financial institution extend loans
to credit-seeking customers.
Topic: Accounts Receivable
AACSB: Analytic Skills
94) Most small businesses conduct a thorough credit investigation before selling to a new
customer.
Topic: Accounts Receivable
AACSB: Analytic Skills
95) An important first step in protecting the small business from bad debt losses is a detailed
credit application.
Topic: Accounts Receivable
AACSB: Analytic Skills
96) One effective technique for improving cash management is to establish a firm credit policy in
writing and let customers know in advance what it is.
Topic: Accounts Receivable
AACSB: Analytic Skills
97) When an account becomes overdue, entrepreneurs must take immediate action.
Topic: Accounts Receivable
AACSB: Analytic Skills
98) Small business owners should not press customers for payment of their past due accounts for
fear of losing them as customers altogether.
Topic: Accounts Receivable
AACSB: Analytic Skills
21
99) The longer a debt is outstanding, the lower its probability of collection.
Topic: Accounts Receivable
AACSB: Analytic Skills
100) When it comes to debt collection, it is appropriate to seek to motivate the customer to pay
and not get into why the bill hasn’t been paid during the “discussion stage” of the collection
process.
Topic: Accounts Receivable
AACSB: Analytic Skills
101) A lockbox arrangement is very inexpensive to operate and is economical even for small
businesses with a low volume of payments on account.
Topic: Accounts Receivable
AACSB: Analytic Skills
102) Some companies manage their accounts receivable and cash by using sweep accounts.
These are accounts where all funds above a certain minimum are automatically moved into an
interest-bearing account.
Topic: Investing Surplus Cash
AACSB: Analytic Skills
103) The wise small business owner should strive to stretch out his/her payables as long as
possible without damaging the company’s credit rating.
Topic: Accounts Payable
AACSB: Analytic Skills
104) An invoice marked 3/12 net 30 means that you can take a 3% discount if you pay the bill in
12 days but you must pay the entire balance in 30 days.
Topic: Accounts Payable
AACSB: Analytic Skills
22
105) Usually, trade credit from vendors is expensive, and small business owners should avoid it.
Topic: Accounts Payable
AACSB: Analytic Skills
106) The danger inventory poses to a small business is the amount of cash it ties up.
Topic: Inventory
AACSB: Analytic Skills
107) Because inventory is illiquid, cash invested there is tied up and cannot be used for other
purposes.
Topic: Inventory
AACSB: Analytic Skills
108) Carrying too much inventory decreases the chances that a business will run out of cash.
Topic: Inventory
AACSB: Analytic Skills
109) One highly effective cash management strategy is to schedule inventory deliveries as early
as possible to speed your payment of accounts payable.
Topic: Inventory
AACSB: Analytic Skills
110) The nice thing about barter is that there is almost no cost involved in the process.
Topic: Barter
AACSB: Analytic Skills
111) Nearly 80% of companies in the United States use leases to help cash management.
Topic: Bootstrapping Overhead
AACSB: Analytic Skills
23
112) A lease is treated as an operating expense and is not carried as a liability on a company’s
balance sheet.
Topic: Bootstrapping Overhead
AACSB: Analytic Skills
113) Rather than build the current year’s budget on increases from the previous year’s budget,
zero-based budgeting starts from a budget of zero and evaluates the necessity of every item.
Topic: Zero-Based Budgeting
AACSB: Analytic Skills
114) 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.
Topic: Investing Surplus Cash
AACSB: Analytic Skills
115) When investing surplus cash, the small business owner should seek the highest returns
possible on the money.
Topic: Investing Surplus Cash
AACSB: Analytic Skills
116) A sweep account automatically “sweeps” all funds in a company’s checking accounts above
a predetermined minimum into an interest-bearing account.
Topic: Investing Surplus Cash
AACSB: Analytic Skills
117) Proper management of cash accounts can yield the owner additional leverage, the
equivalent to actually keeping the capital in the accounts.
Topic: Conclusion
AACSB: Analytic Skills
24
118) Hiring both part-time and freelancers rather than full-time workers saves on both the cost of
salaries and employee benefits.
Topic: Bootstrapping Employee Costs
AACSB: Analytic Skills
119) At the end of a capital lease, a business has no option left to purchase the equipment.
Topic: Bootstrapping Overhead
AACSB: Analytic Skills
120) Lease is considered a liability on the balance sheet.
Topic: Bootstrapping Overhead
AACSB: Analytic Skills
121) Only 60% of a typical business’ inventory turns over quickly.
Topic: Inventory
AACSB: Analytic Skills
122) Selling on credit is a common practice in business.
Topic: Accounts Receivable
AACSB: Analytic Skills
123) Cash flow cycle refers to the time lag between paying suppliers for merchandise and
receiving payment from customers.
Topic: Cash Management
AACSB: Analytic Skills
124) Cash flow measures a company’s liquidity and its ability to pay its bills and other financial
obligations on time by tracking the flow of cash into and out of the business over a period of
time.
Topic: Cash Management
AACSB: Analytic Skills
25
125) Cash budget is the same as “cash map.”
Topic: The Cash Budget
AACSB: Analytic Skills
126) There are four steps to creating a cash budget: Determining an adequate minimum cash
balance; Forecasting sales; Forecasting cash receipts; and Estimating the end-of-month cash
balance.
Topic: Preparing a Cash Budget
AACSB: Analytic Skills
127) Carrying too much inventory increases the chances that a business will run out of cash.
Topic: Inventory
AACSB: Analytic Skills
128) One disadvantage of carrying too much inventory is controlling and managing the
inventory.
Topic: Inventory
AACSB: Analytic Skills
129) Bartering refers to buying much needed materials, equipment, and supplies in exchange of
other products or services and cash.
Topic: Barter
AACSB: Analytic Skills
130) What are the five cash management roles an entrepreneur needs to fulfill in his/her small
business?
Topic: Cash Management
AACSB: Analytic Skills
26
131) Define or describe the terms: revenue, cash, profit, cash budget, cash flow, and cash flow
cycle. Why is it important to understand the differences among them?
Topic: Cash and Profits are not the Same
AACSB: Reflective Thinking
132) Discuss the five basic steps to establishing a cash budget for a business.
Topic: Preparing a Cash Budget
AACSB: Analytic Skills
133) What are the big three of cash management? How does each impact the operation of the
small business?
Topic: The “Big Three” of Cash Management
AACSB: Reflective Thinking
27
134) Create a credit and collection policy for a privately owned small bookstore/café which has a
number of customers who buy pastries on account and numerous customers with standing book
orders that they pay on once a month.
Topic: Accounts Receivable
AACSB: Reflective Thinking
28
135) If you were having difficulty getting your customers to pay in a timely manner, what could
you do to speed payment?
Topic: Accounts Receivable
AACSB: Analytic Skills
29
136) How should a small business owner manage his/her accounts payable?
Topic: Accounts Payable
AACSB: Analytic Skills
137) How can an entrepreneur manage inventory in order to improve cash flow?
Topic: Inventory
AACSB: Reflective Thinking
138) What role does barter play in improving a small firm’s cash flow?
Topic: Barter
AACSB: Reflective Thinking
139) Offer several suggestions on how to trim overhead expenses in order to avoid a cash crunch.
Explain how each technique can reduce the cash requirements for a small business.
Topic: Bootstrapping Overhead
AACSB: Analytic Skills
30