A precautionary cash balance:
A)is used to replace spoiled or damaged inventory.
B)is held to facilitate cash disbursements when receipts slow down.
C)is used for normal day-to-day operations.
D)is held for the benefit of a sister affiliate.

Question

Quizplus · Accepted Answer

A precautionary cash balance is held to provide a buffer during periods when cash receipts are slower than anticipated, helping the company to cover its operating expenses and prevent a cash flow crisis. It is not held for any other purpose stated in the other answer choices.

A Precautionary Cash Balance