Which of the Following Statements Is Incorrect About Working Capital

question 37

Multiple Choice

Which of the following statements is incorrect about working capital policy?

• A) A company may hold a relatively large amount of cash if it anticipates uncertain sales levels in the coming year.
• B) Credit policy has an impact on working capital since it has the potential to influence sales levels and the speed with which cash is collected.
• C) The cash budget is useful in determining future financing needs.
• D) Holding minimal levels of inventory can reduce inventory carrying costs and cannot lead to any adverse effects on profitability.
• E) Managing working capital levels is important to the financial staff since it influences financing decisions and overall profitability of the firm.

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Definitions:

Cash Receipts

Monies received by a business during a specified period from transactions, including sales and services.

Credit Sales

Transactions where goods or services are sold and payment is deferred to a future date.

Budgeted Sales

Projected sales revenue, often part of a company’s financial planning process to estimate future income from sales.

Cash Disbursements

Outflows of cash for expenses, investments, and other payments made by a business.