List the benefits and costs of: a. Cash and equivalents b. Receivables c. Inventory

List the benefits and costs of:

a. Cash and equivalents b. Receivables c. Inventory

Solutions

Expert Solution

a) Cash and equivalents

Benefits:

Cash and equivalents are the easiest to liquidate and thus improve on the short term and long term liquidity ratios.

Costs:

Too much cash and equivalents is considered to be detrimental since such liquid asset cannot be utilized to generate higher return by investing in any long term assets

b) Receivables

Benefits:

Higher receivables improve the relationship with the customer since they are offered comfortable payment terms. Also, higher receivable is a sign of increase in cash flows to the firm in the short run

Costs:

Higher receivables increase the chances of doubtful debt and is also an indication that the firm could not negatiate favorable terms with the customer

c) Inventory

Benefits:

Higher inventory ensures that there is no shortage in production due to shortage of raw materials and other liquid assets. This ensures that the firm can undergo its production at full capacity

Costs:

More than optimal inventory is detrimental since it indicates inefficiency of the firm to optimally maintain its inventory. Also, more than needed inventory increases the debt costs and hence increases the interest costs.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A company has got $500 in cash and cash equivalents, $300 in inventory and $200 in...

A company has got $500 in cash and cash equivalents, $300 in inventory and $200 in account receivables. The firm has long term assets of $500. The firm has accounts payables of $200. All other current liabilities total $400. The firm had sales of $10000, EBIT of $5000, interest expenses of $2000 and net income of $800. Compute the following ratios: Current ratio DSO TIE profit margin Total asset turnover

Cash and cash equivalents balance, December 31, 2014 $ 38,000 Cash and cash equivalents balance, December...

Cash and cash equivalents balance, December 31, 2014 $ 38,000 Cash and cash equivalents balance, December 31, 2015 106,856 Cash received as interest 3,800 Cash paid for salaries 110,200 Bonds payable retired by issuing common stock (no gain or loss on retirement) 170,000 Cash paid to retire long-term notes payable 190,000 Cash received from sale of equipment 93,100 Cash received in exchange for six-month note payable 38,000 Land purchased by issuing long-term note payable 98,600 Cash paid for store equipment...

Cash and cash equivalents, Dec. 31 prior year-end $ 45,000 Cash and cash equivalents, Dec. 31...

Cash and cash equivalents, Dec. 31 prior year-end $ 45,000 Cash and cash equivalents, Dec. 31 current year-end 126,540 Cash received as interest 4,500 Cash paid for salaries 130,500 Bonds payable retired by issuing common stock (no gain or loss on retirement) 140,000 Cash paid to retire long-term notes payable 225,000 Cash received from sale of equipment 110,250 Cash received in exchange for six-month note payable 45,000 Land purchased by issuing long-term note payable 81,200 Cash paid for store equipment...

all of the following are types of accounting methods except? a. hybrid b. cash c. inventory...

all of the following are types of accounting methods except? a. hybrid b. cash c. inventory d. accrual

Provide healthcare examples of the following market failure: a) External benefits- b) External costs- c) Public...

Provide healthcare examples of the following market failure: a) External benefits- b) External costs- c) Public goods. d) Imperfect competition e) Imperfect information Provide healthcare examples of the following market failure: a) External benefits- b) External costs- c) Public goods. d) Imperfect competition e) Imperfect information Provide healthcare examples of the following market failure: a) External benefits- b) External costs- c) Public goods. d) Imperfect competition e) Imperfect information ( NO PLAGIARISM PLEASE , 70 WORDS ESSAY FOR a, b,...

(A) Describe the costs and benefits of the “stay” foraging strategy. (B) Describe the costs and...

(A) Describe the costs and benefits of the “stay” foraging strategy. (B) Describe the costs and benefits of the “move” foraging strategy. (C) Which strategy conformed to the Marginal Value Theorem?

Balance Sheet As of December 31,2016 Assets Cash and equivalents 295,500 Accounts receivable 875,000 Inventory 437,500...

Balance Sheet As of December 31,2016 Assets Cash and equivalents 295,500 Accounts receivable 875,000 Inventory 437,500 Total Current Assets 1,608,000 Plant and equipment 475,000 Accumulated depreciation (234,550) Net Fixed Assets 240,450 Total Assets 1,848,450 Liabilities and Owner’s Equity Accounts payable 306,250 Short-term notes payable 88,185 Other current liabilities 18,200 Total Current Liabilities 412,635 Long-term debt 495,800 Total Liabilities 908,435 Common Stock 700,000 Retained earnings 240,015 Total Shareholder’s Equity 940,015 Total Liabilities and Owner’s Equity 1,848,450ZHIAO-WAY Inc. Income Statement For the...

Assets 2019 2018 Amount Cash & equivalents $20,000.00 Cash & equivalents $10,000.00 Accounts Receivable $15,000.00 Accounts...

Assets 2019 2018 Amount Cash & equivalents $20,000.00 Cash & equivalents $10,000.00 Accounts Receivable $15,000.00 Accounts Receivable $25,000.00 Inventory $10,000.00 Inventory $15,000.00 Total current assets $45,000.00 Total current assets $50,000.00 Net Plant and equipment $50,000.00 Net Plant and equipment $60,000.00 Total assets $95,000.00 Total assets $110,000.00 Liabilities and equity Liabilities and equity Accounts payable $5,000.00 Accounts payable $7,000.00 Accruals $2,000.00 Accruals $3,000.00 Notes payable $10,000.00 Notes payable $5,000.00 Total current liabilities $17,000.00 Total current liabilities $15,000.00 Long term debts $25,000.00...

Working capital assets are comprised of cash, accounts receivables, and inventory. Is one more important to...

Working capital assets are comprised of cash, accounts receivables, and inventory. Is one more important to manage than another? Why? Why not? Which of these are the most difficult to manage? How does the accounting basis (cash vs. accrual) an organization chooses change your response, especially in regards to accounts receivables?

At December 31, 20X0, Antibes Products has cash of 25,000, receivables of 32,000 and inventory of...

At December 31, 20X0, Antibes Products has cash of 25,000, receivables of 32,000 and inventory of 40,000. The company’s equipment totals 49,000. The company owes accounts payable of 41,000 and long term notes payable of 50,000. Share capital amounts to 55,000 Requirements 1 Complete the company’s balance sheet at December 31, 20X0 2 Use the accounting equation to compute retained earnings

Subjects