Which Is the Better Choice for Evaluating Across Companies: Days

question 148

Multiple Choice

Which is the better choice for evaluating across companies: Days' Cash on Hand or the amount in the company's Cash account?

• A) The amount in the Cash account, because the company with the largest amount of cash is the most liquid.
• B) Days' Cash on Hand, because it is calculated as a ratio, which expresses cash relative to the cash requirements of the business.
• C) Days' Cash on Hand, because a daily cash amount is more accurate.
• D) The amount in the Cash account, because companies with a lower cash balance are considered a greater credit risk.

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Definitions:

Depreciation

An accounting method of allocating the cost of a tangible or physical asset over its useful life to account for declines in value.

Ordinary Assets

Assets that are held for sale in the ordinary course of a business or are otherwise not capital assets, including inventory and property used in a trade or business.

Inventory

Goods and materials held by a business for the purpose of sale or production.

Trade or Business

Trade or Business refers to any activity conducted for profit or livelihood, including goods and services production, buying, selling, or providing services.