Asked by Brooke Thompson on Jul 08, 2024
Verified
Which statement best describes cash management?
A) A cash management system that minimizes collections float and maximizes disbursement float is better than one with higher collections float and lower disbursement float.
B) A cash management system that maximizes collections float and minimizes disbursement float is better than one with lower collections float and higher disbursement float.
C) The use of a lockbox is designed to minimize cash theft losses in retail stores. If the cost of the lockbox is less than theft losses saved, then the lockbox should be installed.
D) Other things held constant, a firm will need an identical line of credit regardless of whether it must pay its bills by the 5th of each month or pay its bills due uniformly during the month.
Collections Float
The time gap between when a check is deposited into a bank account and the funds are available for use.
Cash Management System
A suite of services and tools used by businesses to manage their cash flow, including collection services, disbursement services, and liquidity management.
- Determine the objectives and impacts of various cash management tactics on a company's net float.
Verified Answer
DR
Dakota ReynoldsJul 09, 2024
Final Answer :
A
Explanation :
BA cash management system aims to minimize collections float (time it takes for payments from customers to clear and become available funds) and maximize disbursement float (time between the firm issuing a payment and the actual cash outflow). This improves the firm's cash flow and liquidity. Option A correctly describes a system that minimizes collections float and maximizes disbursement float as preferable. Option B also correctly describes the inverse relationship between collections and disbursement floats in an effective cash management system.
Learning Objectives
- Determine the objectives and impacts of various cash management tactics on a company's net float.