Multiple Choice
Which type of accounting information uses historical data to assist in making present decisions?
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1. Introduction to Accounting
Useful Information
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Which of the following statements best describes the goals and principles of cash management?
A
To avoid monitoring cash flows, as cash management is not essential for business operations.
B
To ensure that a company has sufficient cash to meet its obligations while minimizing idle cash balances.
C
To maximize the amount of cash held at all times, regardless of company needs.
D
To invest all available cash in long-term assets to increase profitability.
Verified step by step guidance1
Understand the concept of cash management: Cash management involves planning, monitoring, and controlling cash flows to ensure a company has enough liquidity to meet its obligations while optimizing the use of cash resources.
Analyze the first option: 'To avoid monitoring cash flows, as cash management is not essential for business operations.' This statement is incorrect because cash management is a critical aspect of business operations to ensure liquidity and financial stability.
Evaluate the second option: 'To ensure that a company has sufficient cash to meet its obligations while minimizing idle cash balances.' This statement aligns with the goals of cash management, which aim to balance liquidity needs with efficient use of cash resources.
Review the third option: 'To maximize the amount of cash held at all times, regardless of company needs.' This statement is incorrect because holding excessive cash can lead to missed investment opportunities and reduced profitability.
Assess the fourth option: 'To invest all available cash in long-term assets to increase profitability.' This statement is incorrect because investing all cash in long-term assets can compromise liquidity and the ability to meet short-term obligations.
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