BU387 Chapter Notes - Chapter 7: Cash Cash, Petty Cash, Cash Flow
Document Summary
Rely on cash flow budgets to help anticipate cash needs and minimize borrowing requirements. Companies with surplus cash try to minimize idle cash by putting extra resources into short- term deposits. Control of cash includes implementing internal control over physical custody of cash on hand and preparation of regular bank reconciliations. Increase in a/r might be cause of concern for some companies when it indicates inability to collect receivables on timely basis. Typical a/r related categories include trade receivables, loan receivables, and nontrade receivables (interest receivables, amounts due from officers, and advances to employees) A/r related to sales, and if sales are overly aggressive with credit policy, it could result in significant increases in bad debts and uncollectable accounts. Companies assess creditworthiness of new customers and grant credit limit accordingly. Too tight/restrictive credit policies = potential sales lost to competitors. Too loose/flexible credit policies = enter contracts with high risk customers = collectability difficulties.
