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Impact of current assets & liability on cash management

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I need to understand how to: Explain how current asset and liability accounts affect cash managment

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Explain how current asset and liability accounts affect cash management

Cash management is the management of cash to maintain the company financially healthy which means the management of cash aims to maintain the short term solvency and the long term survival of the organization. To manage the cash, current assets, current liabilities and other liabilities need to be managed efficiently.

Current assets mean those assets which can be easily converted into cash. Current asset consists of cash, accounts receivable, inventory and marketable securities. If the current assets are less, then the company's liquidity position will ...

Solution Summary

The answer describes the meaning of current assets and current liabilities and also its impact on cash management.

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Match the definitions on the left with the answers on the right.

Match the definitions on the left with the answers on the right.

1. ___ Aging of Accounts Receivable A. Evaluate liquidity by dividing current assets by current liabilities
2. ___ Balance Sheet B. A report of the sales, costs, and net income of the company for a period of time (usually annually)
3. ___ Cash Discount C. Ability to compare the accounting information of different companies because they use the same accounting principles
4. ___ Cost of Goods Sold D. Analysis to determine whether customers are paying their bills within the time prescribed by credit terms
5. ___ Comparability E. A break-down of a company's assets and claims on those assets by shareholders and debt holders.
6. _A__ Income Statement F. Financing and management of the firm's current assets
7. ___ Current Ratio G. Long-term agreement allowing one party (lessee) to use another party's asset (lessor) accounted for like a purchase.
8. ___ Cost Principle H. Discount given if payment is made within specified period of time.
9. ___ Free cash flow I. Costs associated with inventory - includes warehouse space, insurance premiums, and material handling expenses
10. ___ Profitability Ratios J. Cash provided by operating activities adjusted for capital expenditures and dividends paid.
11. ___ Statement of Cash Flows K. Measure of firm's ability to earn adequate return on sale, total assets, and invested capital
12. ___ Working Capital Management L. Companies should record assets at their cost.
13. ___Carrying costs M. Current Assets minus Current Liabilities
14. ___Capital Lease N. Costs associated with units sold during a time period
15. ___Working Capital O. A report breaking down of the impact of operations, investing, and financing on cash flows

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