Question

Determine whether each policy below is good or bad cash management; then identify the cash management strategy violated or followed for each policy.
a. The company regularly follows up with customers who pay late.
b. Excess cash is put into short-term investments to earn extra income.
c. Cash receipts and cash payments are regularly planned and reviewed.
d. Rarely used equipment is rented rather than purchased.
e. Bills are paid as soon as they are received.

Answer 1

Answer: Please refer to Explanation.

Explanation:

a. The company regularly follows up with customers who pay late.

This is GOOD.

Cash Management Strategy - Collection of Accounts Receivables on time to maintain cash balance.

b. Excess cash is put into short-term investments to earn extra income.

This is GOOD.

Cash Management Strategy - Earning extra income on idle cash by investing in short-term liquid investments.

c. Cash receipts and cash payments are regularly planned and reviewed.

This is GOOD.

Cash Management Strategy - Cash Planning to establish a correct balance between payments and receipts.

d. Rarely used equipment is rented rather than purchased.

This is GOOD

Cash Management Strategy - Saving money by spending economically only when needed.

e. Bills are paid as soon as they are received.

This is BAD

Cash Management Strategy - Paying bills when due to ensure that operating cash balance is maintained at a healthy level.

If you need any clarification do comment.

Cheers.