Name: Maureen Delfino Date: September 13,2018

Grade&Section: 12Abm5 Subject Teacher: Ms. Eve

Homework no. 2

Self-testing Questions

1.Why is management of working capital important?

 The importance of working capital management is to measure if the operations of the business
work sufficient liquidity to its operation smoothy which some cash could be used to pay down
debt or invest in a profitable project.
2. Enumerate the three working capital financing policies and describe each briefly.
 Maturity Matching capital financing, wherein short term requirements are met with short term
debts and long term depts.
 Anggressive working capital, your goal is to put as much money to work as possible to decrease
the time needed to produce products, turn over inventory or deliver services.
 Conservative capital financing, low risk and low profitability and it is also financed by long term
financing.

3. Identify four internal control measure for cash.

 Separating cashiering function from the recording or accounting function.

 Issuing official receipts for collections and summarizing collections in a daily collection report.
 Depositing collections.
 Adopting the check voucher system for payments.

4. What is cash budget?

 Is the estimation of the cash inflows and outflows for a business over a specific period of time.
5. Discuss the importance of cash budget.
 It allows a company to establish the amount of credit that it can extend to customers without
having problems with the liquidity. It also helps avoid a shortage of cash during periods in which
company encounters a high number of expenses.

6. Differenciate primary reasons from the secondary reasons for holding cash. Provide an example for
each.

 Primary reasons for holding cash are for transaction and compensating balance purposes.
 Example: A firm need to create products or services resulting in the need of cash inflows and
outflows that they have.
 Secondary reasons for holding cash are the precautionary and speculative purposes.
 Example: a company hold a cash for precautions serves as an emergency fund for a firm to use to
short term obligations and purchasing extra inventory for creating the ability to a firm to take
advantage of special opportunities.
7. What are the five Cs of credit.

 Character
 Capacity
 Capital
 Collateral
 Condition

8. Why is aging of accounts receivable important?

 Because it helps them understand your outstanding receivables and their quality and also is used
in the due diligence process to detect invoices that pay slowly. The report helps identi6possible
collections issues.

9. Why is aging of inventories important?

 It is important for the company which are dealing with products and it is also showing by
inventory item the amount of inventory that may have been kept to know the status of the
company at any point of time.

10. What is ABC analysis in inventory management?

 Is an inventory categorization method which consists in dividing items into three categories, A, B,
C. A being the most valvaluable items, C being the least valuable ones. This method aims to draw
managers attention on the critical few ( A-items) and not on the trivia many (C-items).

11. Why is it important to keep good relationship with suppliers?

 Because as a consumer they provide a supply for your business to make it profitable and run it
well, they can also give a tip, information and advice to maintain your business well towards
your goal.