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5 Written questions

5 Matching questions

  1. record control
  2. markdown
  3. quick ratio
  4. petty cash
  5. working capital
  1. a Current assets - Current liabilities. Working capital measures the extent to which a company's current assets cover its current liabilities. It is viewed as a measure of solvency and is often used in debt covenants to ensure that the borrower maintains a sufficient buffer of current assets to current liabilities. Like the current and quick ratio, however, working capital is a relatively weak measure of a company's solvency position.
  2. b (Cash + Marketable Securities accounts Receivable)/Current liabilities. The quick ratio compares a company's highly liquid assets to its current liabilities, providing a measure of the portion of the current liabilities that could be paid off in the near future.
  3. c The procedures designed to ensure that the cash account on the balance sheet reflects the actual amount of cash in the company's possession.
  4. d A small amount of cash kept on hand to cover minor expenses.
  5. e A markdown is a reduction in sales price normally due to decreased demand for an item. Markdowns are very common in the retail industry, especially at the close of the seasons. These discounts are designed to accelerate sales of old items (boosting inventory turnover), making room for new inventories market price The market price is the price at which an asset can be exchanged in the open (output) market as of a particular point in time. See fair market value and stock price.

5 Multiple choice questions

  1. Accounts receivable is a balance sheet account indicating the dollar amount due from customers from sales made on open account. It arises when revenues are recognized before receipt of the associated cash payment. Accounts receivable is normally included as a current asset and for some companies can be quite large.
  2. A decrease in value due to changes in the exchange rate.
  3. The exchange rate is the value of one currency expressed in terms of another currency. Like the prices of all goods and services, the exchange rates among currencies vary from one day to the next. Companies that transact in more than one currency face the risks associated with fluctuating exchange rates, which can give rise to gains and losses—some of which are reflected on the financial statements. Fledging is a strategy that can be used to reduce such risks.
  4. Compensating balances are minimum cash balances that must be maintained in savings or checking accounts until certain loan obligations are satisfied. Compensating balances help financial institutions reduce the risks of default on outstanding loans by ensuring that at least some cash is available for scheduled loan payments.
  5. Hedging is a strategy used by management to reduce the risk associated with fluctuations in the values of assets and liabilities.

5 True/False questions

  1. aging scheduleAging is a method of estimating and analyzing collectible accounts receivable that categorizes individual accounts on the basis of the amount of time each has been outstanding. Each category is then multiplied by a different uncollectible percentage under the assumption that older accounts are more likely than new accounts to be uncollectable. This method is used primarily by management to identify and maintain control over uncollectible accounts receivables.

          

  2. open accountWhen a good or service is sold on credit, the selling company wishes to collect the cash as soon as possible. To encourage prompt payment, many companies offer cash discounts on the gross sales price. Cash discounts specify that an amount of cash less than the gross sales price is sufficient to satisfy the obligation.

          

  3. cash discountWhen a good or service is sold on credit, the selling company wishes to collect the cash as soon as possible. To encourage prompt payment, many companies offer cash discounts on the gross sales price. Cash discounts specify that an amount of cash less than the gross sales price is sufficient to satisfy the obligation.

          

  4. window dressingWindow dressing is a phrase used to describe the activity of managers who use accounting methods, judgments, and estimates or make operating decisions purely to make the financial statements appear more attractive to financial statement users.

          

  5. quantity discountWhen a good or service is sold on credit, the selling company wishes to collect the cash as soon as possible. To encourage prompt payment, many companies offer cash discounts on the gross sales price. Cash discounts specify that an amount of cash less than the gross sales price is sufficient to satisfy the obligation.