Asked by Felicia Thompson on Jul 14, 2024
Verified
Peterson Products uses a zero-balance account for cash management purposes. McLeod Enterprises does not. If the firms are otherwise identical, one would expect McLeod to maintain a larger total cash safety stock than Peterson.
Zero-Balance Account
A chequing account in which a zero balance is maintained by transfers of funds from a master account in an amount only large enough to cover cheques presented.
Cash Safety Stock
The minimum amount of cash that a company needs to keep on hand to protect against unforeseen variability in cash flow.
Safety Stock
Extra inventory held by a company to prevent stockouts caused by unforeseen variations in supply and demand.
- Understand how zero-balance accounts operate and their benefits in cash management.
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Learning Objectives
- Understand how zero-balance accounts operate and their benefits in cash management.
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