Exercise 6-3 (10 minutes)
1. A liquid asset refers to an asset that can be readily converted into
another type of asset or be used to satisfy an obligation. A cash
2. Companies usually invest idle cash in cash equivalents to earn a higher
return on these assets.
3. Effective cash management applies the following five principles:
a. Encourages collection of receivables.
Exercise 6-4 (15 minutes)
(a) Internal Control Problems
(1) A major internal control problem is that the recordkeeper (who has
(2) The recordkeeper might also delay recording a cash receipt from a
customer until more cash comes in at a later date from a second
(3) The recordkeeper also could pocket cash and claim that a payment was
(1) If only one person is present when the mail is opened, that person may
steal cash and claim it was never received. If possible, two people
(2) It is important the recordkeeper not have physical control over cash.