The Cash Balances of Most Firms Consist of Transactions, Compensating

question 26

True/False

The cash balances of most firms consist of transactions, compensating, precautionary, and speculative balances.We can produce a total desired cash balance by calculating the amount needed for each purpose and then summing them together.

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Definitions:

Note Receivable

A financial document representing a borrower's promise to pay back a specified amount of money plus interest to a lender at a future date.

Allowance for Doubtful Accounts

An accounting provision representing the estimate of uncollectable accounts receivable.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Accounts Receivable Turnover

The relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.