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Questions and Answers
What is the primary goal of mopping up idle funds?
When evaluating short-term investment options, what is an important consideration?
What is the purpose of diversification in short-term investments?
What is an important consideration when developing an investment policy?
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Why is it important to monitor and rebalance investments regularly?
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What is the primary goal of cash management?
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Why is efficient management of accounts receivable important for cash flow?
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How does inventory management impact cash flow?
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What is the primary goal of cash budgeting in cash management?
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What is the purpose of effective cash management in terms of liquidity?
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What is the result of having a cash budget?
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What is the primary objective of cash management?
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What is the benefit of effective cash management in terms of risk management?
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What is the purpose of daily cash reports and bank book balance in cash management?
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What is the primary purpose of optimal use of funds?
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What is the benefit of short-term investments in cash management?
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What is the purpose of bank reconciliation in cash management?
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Which of the following is a benefit of effective cash flow forecasting?
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What is the primary goal of cash flow management?
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What is a result of poor cash flow management?
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What is a benefit of efficient cash collections?
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What is a consequence of leaving cash idle?
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What is a tool used in cash flow management to reduce the risk of cash shortages?
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What is a benefit of effective risk management in cash flow management?
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Study Notes
Short-Term Investment
- Mopping up idle funds involves investing surplus cash to generate returns and improve overall financial efficiency.
- Evaluate various short-term investment instruments (e.g., money market funds, certificates of deposit) based on risk and return.
- Diversification involves spreading investments across different instruments to minimize risk.
- Consider liquidity by ensuring investments can be easily converted to cash when needed.
- Develop and adhere to an investment policy that aligns with the organization's goals and risk tolerance.
- Regularly review investments to ensure they meet the organization's liquidity needs and adjust as necessary.
- Match the investment duration with the organization's cash flow requirements to optimize returns.
Current Assets and Cash Management
- The relationship between current assets and cash management is crucial for maintaining liquidity and managing working capital effectively.
- Current assets, such as cash, accounts receivable, and inventory, represent the resources a company can convert into cash within a short period, typically one year.
- Cash management involves overseeing the company's cash balances to ensure there is enough liquidity to meet short-term obligations.
- Managing cash inflows and outflows, optimizing cash reserves, and investing surplus cash to earn returns are key aspects of cash management.
- Efficient management of accounts receivable is essential for cash flow, as it accelerates cash inflows and reduces the risk of bad debts.
- Inventory management directly impacts cash flow.
Cash Management
- Cash management is the monitoring and maintaining of cash flow to ensure that a business has enough funds to function.
- It involves managing cash, collections, and short-term investments to handle payroll, meet expenses, and allocate resources efficiently.
- Effective cash management enables businesses to manage cash flow, meet expenses, and allocate resources efficiently.
- Cash management techniques include identifying cash available through cash budgeting, establishing investment goals, determining investment instruments, and daily routine for cash management.
Methods of Cash Management
- Cash monitoring involves closely observing the organization's financial resources, ensuring customers make effective payments, and banking cash as soon as possible.
- Cash budgeting involves predicting how the company's cash can be generated and effectively utilized to identify periods of deficit and surplus.
Purpose of Efficient Cash Management
- Efficient cash management ensures liquidity, optimal use of funds, risk management, working capital management, financial planning, decision making, cost reduction, creditworthiness, profitability, and strategic planning.
Management of Cash Collections
- Efficient invoicing involves ensuring invoices are accurate, clear, and sent promptly to accelerate payment.
- Offering multiple payment options, monitoring accounts receivable, implementing cash discounts, and encouraging electronic funds transfer can expedite cash collections.
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Description
Learn how to invest surplus cash to generate returns and improve financial efficiency. Evaluate short-term investment options, diversify investments, and consider liquidity when making investment decisions.
