Dr. Bell Chapter 14 Outline - Chapter 14 Money In/Money...

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Chapter 14 Money In/Money out -Almost 2/3 of small businesses experience money problems. -Owners reported that the 3 primary causes of cash flow problems were 1. Difficulty collecting money due from customers 2. Seasonal variation in sales 3. Unexpected decreases in sales - Cash to cash cycle - (operating cycle) the time required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale - Payables - amounts owed to vendors for merchandise or services purchased on credit - Receivables - amounts that are owed to a business for merchandise that was sold on credit Many small businesses experience difficulty or even failure because 1. The mismatch in time between receiving cash and spending cash 2. Mismatch between the size of payments received and the size of payments that must be made Money as the key idea - Money - an accepted medium of exchange. -money is a form of information. It defines the essence of money. -Money has two purposes 1. To make exchanges 2. To keep track of wealth or value. - Profit - the amount that revenues exceed expenses Cash and cash equivalents - Cash - money that is immediately available to be spent -cash is composed of 3 forms of money: currency, demand deposits, traveler’s checks - Cash equivalents - assets that may be quickly converted to cash. - Currency - the bills and coins printed by governments to represent money - Demand deposits - money held in checking and savings accounts - Marketable securities - stocks and bonds that are traded on an open market - Commercial paper - notes issued by credit-worthy corporations - Short-term debt - any debt must be paid in less than one year from the date of the financial statement on which it is reported. - Bearer - any person or business entity who possesses a security
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Managing Cash Flow -cash comes from only 3 sources 1. Cash can be obtained by selling the products of the business and collecting cash from customers (cash flow from operations) 2. Cash can be obtained from the
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