Which One of the Following Best Represents the Transaction Motive

question 22

Multiple Choice

Which one of the following best represents the transaction motive for holding cash?

• A)Buying extra inventory in response to an unexpected sale offered by a supplier
• B)Distributing the weekly paychecks
• C)Increasing the minimum cash balance for the firm's main bank account
• D)Unexpectedly purchasing a competitor's firm
• E)Holding cash in anticipation that the firm may need to close for a few days if floodwaters keep rising

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Definitions:

Aging of Accounts Receivable

An accounting process that categorizes outstanding receivables based on the length of time they have been unpaid.

Expense Recognition Principle

An accounting principle that states expenses should be recognized and recorded when they contribute to generating revenue, regardless of when cash is paid.

Allowance for Doubtful Accounts

An accounting entry known as a contra-asset account that predicts the amount of accounts receivable that might be uncollectible.

Realizable Value

The estimated amount for which an asset can be sold, minus any selling costs, at a given point in time.