CBS Cash Flow Management 2 — Questions and Answers
Question 1: A company collects 60% of credit sales in the month of sale and 40% in the following month. If June sales are $80,000 and July sales are $100,000, what are July cash collections?
- $92,000 (Correct answer)
- $80,000
- $100,000
- $68,000
Correct answer: $92,000
July collections = 60% × $100,000 + 40% × $80,000 = $60,000 + $32,000 = $92,000.
Question 2: Which cash flow statement section reflects proceeds from issuing long-term bonds?
- Financing activities (Correct answer)
- Operating activities
- Investing activities
- Non-cash disclosures
Correct answer: Financing activities
Proceeds from issuing long-term debt are classified as financing activities on the cash flow statement.
Question 3: The minimum cash balance maintained to meet unexpected needs is called:
- Safety stock cash
- Precautionary balance (Correct answer)
- Speculative reserve
- Transaction buffer
Correct answer: Precautionary balance
A precautionary balance is cash held to cover unexpected cash outflows or emergencies.
Question 4: Under the indirect method of the cash flow statement, a decrease in accounts receivable is:
- Added to net income (Correct answer)
- Subtracted from net income
- Reported in investing activities
- Ignored entirely
Correct answer: Added to net income
A decrease in accounts receivable means cash was collected in excess of revenue recognized, so it is added to net income.
Question 5: A budget specialist notices that operating cash flow is consistently lower than net income. The most likely cause is:
- Growing accounts receivable (Correct answer)
- Declining depreciation
- Decreasing inventory levels
- Rapid debt repayment
Correct answer: Growing accounts receivable
Growing accounts receivable means revenue is recognized but cash has not yet been collected, reducing operating cash flow relative to net income.
Question 6: Which technique spreads supplier payments to later in the payment terms window to preserve cash?
- Payment stretching (Correct answer)
- Early payment discounting
- Factoring receivables
- Zero-balance accounting
Correct answer: Payment stretching
Payment stretching delays disbursements to the latest allowable date within terms to maximize cash retention.
Question 7: A firm's cash conversion cycle is 45 days. If it reduces its days sales outstanding by 10 days, the new cash conversion cycle is:
- 35 days (Correct answer)
- 55 days
- 45 days
- 40 days
Correct answer: 35 days
Cash conversion cycle = DIO + DSO − DPO; reducing DSO by 10 days decreases the cycle by 10 days, from 45 to 35 days.
CBS Cash Flow Management 2
A company collects 60% of credit sales in the month of sale and 40% in the following month.
If June sales are $80,000 and July sales are $100,000, what are July cash collections?