Chapter 6 Flashcards Preview

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Flashcards in Chapter 6 Deck (10)
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1
Q

Working capital

A

Current assets

2
Q

Credit period

A

The period during which a customer should repay the credit

3
Q

Default of payment

A

when customers pay too late or don’t pay at all

4
Q

Discount period

A

a period when customers get a discount for paying early

5
Q

The 4 sources used for creditworthiness assessment

A

1: Personal visits to the customer
2: Sales representatives
3: Financial statements of the customer
4: Credit reporting agencies

6
Q

Factoring

A

When a company transfers its approved invoices to a factoring company

7
Q

Days sales outstanding formula

A

Average sum of outstanding invoices / sales on account x 365 days

8
Q

Transaction motive

A

Sufficient cash and cash equivalents are kept to allow purchases that guarantee the continuity of the production process (payment of salaries, purchasing raw materials, tax payment etc)

9
Q

Precaution motive

A

Additional cash and cash equivalents are kept, due to uncertainty concerning the size and time of cash payments and receipts

10
Q

Speculation motive

A

additional cash and cash equivalents are kept, to benefit from price changes of production factors