Question 1

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

Accepted Answer

By only producing a product when there is an actual order from a customer, ABC Manufacturing will no longer need to hold inventory for an extended period, which will decrease the cash cycle. This change should not affect the operating cycle, trade receivables period, trade payables period or inventory turnover rate, as the manufacturing process will still involve the same steps and timings, but only begin once an order has been received. Therefore, the best choice is D, as it directly relates to the change in policy towards inventory management.

Question 2

Which one of the following will not affect the operating cycle?

Accepted Answer

Decreasing the payables turnover from 7 times to 6 times will not affect the operating cycle as payables are not a part of the operating cycle. The operating cycle includes inventory, accounts receivable and accounts payable. The other options listed would affect the operating cycle. Increasing the days sales in receivables, decreasing inventory turnover rate and increasing the average receivables balance all result in a longer operating cycle, while decreasing the credit repayment times for the firm's customers will result in a shorter operating cycle.

Question 3

Which one of the following statements concerning the cash cycle is correct?

Accepted Answer

A negative cash cycle indicates that a company receives payments from its customers before it needs to pay its suppliers, which can be beneficial for its cash flow.

Question 4

Which one of the following will increase the trade payables period,all else constant?

Accepted Answer

The trade payables period is calculated by dividing the average accounts payable by the cost of goods sold per day. Therefore, an increase in the ending trade payables balance will directly increase the trade payables period. The other options do not directly affect the trade payables period.

Question 5

A flexible short-term financial policy:

Accepted Answer

The answer of A flexible short-term financial policy:
...

Question 6

Which of the following are associated with a restrictive short-term financial policy?
I.large investments in marketable securities.
II.liberal credit terms for customers.
III.minimal cash balances.
IV.minimal credit sales.

Accepted Answer

A restrictive short-term financial policy involves minimizing cash balances and credit sales, which are reflected in options III and IV. Liberal credit terms for customers and large investments in marketable securities reflect a more lenient or permissive financial policy, which is not consistent with a restrictive policy. Therefore, options I and II are not associated with a restrictive short-term financial policy.

Question 7

Which one of the following will decrease the operating cycle?

Accepted Answer

Decreasing the days sales in inventory means that the company is selling its inventory at a faster rate, which will decrease the length of the operating cycle.

Question 8

Flexible short-term financial policies tend to:

Accepted Answer

Flexible short-term financial policies typically involve maintaining large cash balances to ensure liquidity and the ability to meet short-term obligations.

Question 9

Which of the following actions will tend to decrease the inventory period?
I.discontinuing all slow-selling merchandise
II.selling obsolete inventory below cost just to get rid of it
III.buying raw materials only as they are needed in the manufacturing process
IV.producing goods on demand versus for inventory

Accepted Answer

The answer of Which of the following actions will tend...

Question 10

A flexible short-term financial policy:

Accepted Answer

A flexible short-term financial policy is one where the firm adjusts its short-term borrowing and lending activities to meet its changing business needs. Such a policy is suitable for firms where the carrying costs of holding excess current assets are low compared to the costs of stockouts or shortages. This policy allows the firm to maintain a low level of current assets and utilize short-term external financing to fund its seasonal increases in current assets.

Question 11

A restrictive short-term financial policy tends to:

Accepted Answer

A restrictive short-term financial policy typically includes tighter credit policies, such as higher credit standards and shorter payment terms. This can lead to a reduction in future sales, as some customers may choose to purchase from a competitor who offers more lenient credit terms. A more flexible policy may attract more customers and lead to higher sales.

Question 12

An increase in which one of the following is most apt to be an indicator of a trade receivables policy that is too restrictive?

Accepted Answer

A high trade receivables turnover rate indicates that receivables are being collected quickly, which may suggest that the credit policy is too restrictive, potentially limiting sales.

Question 13

Which one of the following managers is most likely in charge of establishing the trade receivables policy?

Accepted Answer

The credit manager is typically responsible for establishing the trade receivables policy, as they are in charge of overseeing the company's credit operations and ensuring the timely collection of outstanding debts. The purchasing manager is responsible for sourcing and procuring goods and services, the controller oversees the company's financial reporting and budgeting, the production manager is responsible for overseeing manufacturing operations, and the payables manager is in charge of managing the company's accounts payable.

Question 14

Which one of the following will increase the cash cycle?

Accepted Answer

Paying suppliers earlier to receive a discount will decrease the accounts payable turnover, which will increase the cash cycle.

Question 15

Which one of the following statements is correct concerning the cash cycle?

Accepted Answer

The cash cycle is the time it takes for a company to convert its investments in inventory and other resources into cash received from customers. The longer the cash cycle, the more working capital a firm will need, which could lead to external financing.

Question 16

The manager responsible for the accounting information concerning cash flows is the:

Accepted Answer

The controller is typically responsible for the accounting function of an organization, which includes cash flow management. This involves tracking the inflow and outflow of cash, preparing cash flow statements, and ensuring that the company has adequate cash reserves to meet its operating and investing needs. The payables manager, credit manager, purchasing manager, and production manager have roles that are more focused on specific areas of the business and are not directly responsible for cash flow management.

Question 17

If you delay paying your suppliers by an additional ten days,then:

Accepted Answer

The answer of If you delay paying your suppliers by...

Question 18

An increase in which one of the following will decrease the cash cycle,all else equal?

Accepted Answer

An increase in the inventory turnover rate means that inventory is being sold more quickly, which reduces the days sales in inventory and thus decreases the cash cycle.

Question 19

Which of the following actions will tend to decrease the trade receivables period?
I.loosening the standards for granting credit to customers.
II.increasing the discount for early payment by credit customers.
III.increasing the finance charges applied to all customer balances outstanding over thirty days.
IV.granting discounts for cash sales.

Accepted Answer

Increasing the discount for early payment (II) and increasing finance charges for overdue balances (III) encourage quicker payment, reducing the trade receivables period. Granting discounts for cash sales (IV) also reduces receivables by encouraging immediate payment.

Question 20

A restrictive short-term financial policy,as compared to a more flexible policy,tends to: 
I.cause a firm to lose sales due to a lack of inventory on hand.
II.increase the sales of a firm due to the firm's credit availability and terms.
III.increase the probability that a firm will face a cash-out situation.
IV.increase the ability of a firm to charge premium prices.

Accepted Answer

A restrictive short-term financial policy means that a company is limiting its inventory and credit availability, which can cause the firm to lose sales due to a lack of inventory on hand. Additionally, it increases the probability that a firm will face a cash-out situation, as they may not have enough cash on hand to cover their expenses. It does not necessarily increase the sales of a firm or allow the firm to charge premium prices.

Quiz 26: Short-Term Finance and Planning

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

Which one of the following will not affect the operating cycle?

Which one of the following statements concerning the cash cycle is correct?

Which one of the following will increase the trade payables period,all else constant?

A flexible short-term financial policy:

Which of the following are associated with a restrictive short-term financial policy? I.large investments in marketable securities. II.liberal credit terms for customers. III.minimal cash balances. IV.minimal credit sales.

Which one of the following will decrease the operating cycle?

Flexible short-term financial policies tend to:

A flexible short-term financial policy:

A restrictive short-term financial policy tends to:

An increase in which one of the following is most apt to be an indicator of a trade receivables policy that is too restrictive?

Which one of the following managers is most likely in charge of establishing the trade receivables policy?

Which one of the following will increase the cash cycle?

Which one of the following statements is correct concerning the cash cycle?

The manager responsible for the accounting information concerning cash flows is the:

If you delay paying your suppliers by an additional ten days,then:

An increase in which one of the following will decrease the cash cycle,all else equal?