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CHAPTER 11
CASH MANAGEMENT
TRUE OR FALSE QUESTIONS
(Correct answer indicated by T for True and F for False answers)
other working capital accounts.
amount of net income for that period.
being prepared, one twelfth of the taxes would show as a disbursement for each of the
twelve monthly cash budgets.
collection of accounts receivable.
(negative cash flow) may have difficulty borrowing short-term money.
budget.
day-to-day operations.
is known as a bank float.
to the company’s head office bank account is known as concentration banking.
when to write off accounts as bad debts.
accounts receivable.
month into average food inventory during the month.
together and dividing by two.
times in a month.
date.
deducted from cash flow and depreciation is added to the required cash flow.
MULTIPLE CHOICE QUESTIONS
(Correct answer indicated by asterisk)
1. Cash management should be practiced:
(a) To ensure that there is always a surplus of cash on hand
2. Cash management is:
(a) Forecasting monthly net income to know how much cash the company will have from
month to month
3. If a company has an income of $5,000 (after depreciation but before income tax) during a
particular month, its bank account should have increased by:
(a) $5,000, plus depreciation, plus tax
4. In cash budgeting, depreciation expense on the income statement is not shown as a cash
disbursement on a cash budget because:
(a) One has a choice of depreciation methods
5. Sales revenue in Month 1 of a new restaurant is forecast to be $60,000 and in Month 2
$75,000. Cost of sales is estimated to be 30% of sales revenue, with half the cost paid for in
the month of purchase, the other half in the following month. Month 2’s cash disbursement
for purchases is:
(d) $11,250
6. If a cash budget for the next six months showed that in Months 4 and 5 the closing bank
balance figure was negative, the company should:
(d) Not pay any invoices from Months 4 and 5 until the situation improves
7. Which of the following would not affect the annual cash budget, assuming there will be
disbursements for income tax?
(a) Changing the depreciation method from straight line to sum-of-the-years digits
8. Cash conservation implies:
(d) Not allowing any customers to charge their accounts
9. The difference between a company’s record of cash in the bank and the bank’s record is
known as:
(a) The indifference point
10. A method of accelerating the flow of funds from individual units in a chain operation to the
company’s head office is known as:
(d) Centralized banking
11. A house account in a hotel is:
(a) Another name for a city ledger account
12. A schedule of aging of accounts shows:
(a) The individual balances of all accounts receivable
13. A bank lockbox is used to:
(a) Avoid having to use bank float
14. A bar inventory turnover of 1/2 to 1 a month in an establishment, means that the inventory
turnover is:
(d) Once every six months
15. If inventory turnover is increasing over time, and all other things remain equal, this means
that:
(a) More money is being tied up in inventory
(b) Purchases are being made less frequently
