Chapter 11: Managing Current Asset

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  • 1/10 Questions

    A company is correctly described as insolvent when it is unable to:

    • Pay staff bonuses
    • Pay its bills or meet its financial obligations on time 
    • Sell on credit.
    • Pay dividends
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About This Quiz

This quiz in Chapter 11: Managing Current Asset focuses on evaluating knowledge in managing finances, specifically in debt collection, inventory management, cash flow sources, and solvency. It's designed to test understanding of key financial operations and their implications in a business context.

Chapter 11: Managing Current Asset - Quiz

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  • 2. 

    Which of the following does not involve outflows of cash?

    • Payment of taxes

    • Credit sales 

    • Purchase of non-current assets

    • Purchase of inventories

    Correct Answer
    A. Credit sales 
    Explanation
    Credit sales do not involve outflows of cash because they represent sales made on credit, where the payment is expected to be received at a later date. In credit sales, the company extends credit to the customer, allowing them to purchase goods or services without immediate payment. The cash inflow will occur when the customer eventually makes the payment, but at the time of the credit sale, no cash is leaving the company.

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  • 3. 

    Which of the following is not a type of inventory?

    • Raw materials 

    • Accounts receivable

    • Work in progress

    • Finished goods

    Correct Answer
    A. Accounts receivable
    Explanation
    Accounts receivable is not considered a type of inventory because it represents the amount of money that a company is owed by its customers for goods or services already provided. It is classified as a current asset on the balance sheet, but it does not involve physical goods that are held by the company for sale or production. Instead, it represents the company's right to receive payment from its customers in the future.

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  • 4. 

    Which of the following items is not a cash flow item?

    • Payment of wages

    • Payment of creditors 

    • Depreciation charges

    • Receipts from debtors.

    Correct Answer
    A. Depreciation charges
    Explanation
    Depreciation charges are not a cash flow item because they do not involve the actual inflow or outflow of cash. Depreciation is a non-cash expense that represents the decrease in value of an asset over time. It is recorded to allocate the cost of the asset over its useful life, but it does not involve any cash transaction. Therefore, it is not considered a cash flow item in financial statements.

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  • 5. 

    Which of the following involves a two-way flow of cash?

    • Debt finance

    • Payment of wages

    •  Payment of taxes 

    • Payment of creditors

    Correct Answer
    A. Debt finance
    Explanation
    Debt finance involves a two-way flow of cash because it refers to borrowing money from a lender, such as a bank or financial institution, in exchange for a promise to repay the borrowed amount with interest over a specific period of time. This means that the borrower receives cash from the lender, creating an inflow of cash, and then the borrower is required to make regular payments to the lender, resulting in an outflow of cash. Therefore, debt finance involves a two-way flow of cash.

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  • 6. 

    Which of the following is not a source of cash?

    • Credit purchases

    •  Short-term loans 

    • Capital injection

    • Long-term loan funding

    Correct Answer
    A. Credit purchases
    Explanation
    Credit purchases are not a source of cash because they involve purchasing goods or services on credit, which means that payment is deferred to a later date. In other words, cash is not immediately received when making credit purchases. On the other hand, short-term loans, capital injection, and long-term loan funding are all sources of cash as they involve receiving money either through borrowing or investment.

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  • 7. 

    Which of the following is not a cost of holding inventories?

    • Insurance

    • Bad debts

    • Storage and display 

    • Financing costs.

    Correct Answer
    A. Bad debts
    Explanation
    Bad debts are not a cost of holding inventories because they are associated with unpaid customer invoices, not with the physical storage or maintenance of inventory. Bad debts occur when customers fail to pay for the goods or services they have received, resulting in a loss for the company. This is a separate issue from inventory holding costs, which include expenses such as insurance, storage, and financing costs.

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  • 8. 

    Which of the following is generally not a step in the debt collection process?

    • Send an 'account rendered' statement 

    • Post an 'account overdue' letter

    • Put the unpaid account into the hands of a solicitor

    • None of the above

    Correct Answer
    A. None of the above
    Explanation
    The correct answer is "None of the above." This means that all of the given options are generally steps in the debt collection process. Sending an 'account rendered' statement, posting an 'account overdue' letter, and putting the unpaid account into the hands of a solicitor are all common steps taken to collect a debt.

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  • 9. 

    Efficient credit collection

    • Increases the value of debtors 

    • Reduces the value of creditors

    • Reduces the value of debtors.

    • Increases credit sales

    Correct Answer
    A. Reduces the value of debtors.
    Explanation
    Efficient credit collection refers to the process of collecting outstanding debts from customers in a timely and effective manner. When credit collection is efficient, it reduces the value of debtors. This means that the amount of money owed by customers decreases, resulting in a lower value of debtors on the company's balance sheet. By reducing the value of debtors, the company can improve its cash flow and financial position.

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  • 10. 

    Which of the following is not encompassed within the just-in-time (JIT) philosophy?

    • Reduction in setup times

    • Multi-skilled workers

    • Zero defects 

    • Larger inventories

    Correct Answer
    A. Larger inventories
    Explanation
    Larger inventories are not encompassed within the just-in-time (JIT) philosophy. JIT focuses on minimizing waste, including excess inventory. The philosophy aims to have the right amount of inventory at the right time, reducing storage costs and the risk of obsolescence. By keeping inventory levels low, companies can improve efficiency, reduce lead times, and respond more effectively to customer demand. Therefore, larger inventories contradict the principles of JIT.

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  • Jan 27, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • May 07, 2020
    Quiz Created by
    S11159115
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