For Each of the Following Scenarios,determine If It Is an Indicator

question 67

Essay

For each of the following scenarios,determine if it is an indicator of potential cash flow problems:
                                                                                    Potential future cash
                                                                                      flow problems
                                                                                         Yes/No
a.Growth in accounts receivable or inventories that is less the growth rate in sales.
b.Increases in accounts payable that exceed the increase in inventories.
c.Capital expenditures that substantially exceed cash flow from operations.
d.Sales of marketable securities are less than purchases of marketable securities.
e.Other operating current liabilities that grow at a lesser rate than sales.
f.A reduction or elimination of dividend payments
g.A substantial shift from long-term borrowing to short-term borrowing.

---

Definitions:

Unfavorable Variance

A situation where actual costs exceed the standard or budgeted costs, often indicating inefficiencies or increased expenses.

Favorable Variance

A financial term indicating that actual costs were lower or revenues were higher than planned.

Budgeted Amount

The projected costs or revenues allocated to a specific activity or period, based on estimates.

Budget Ratcheting

The practice of setting future budget allocations based on the current period’s expenditures, discouraging under-spending in fear of budget cuts.