Question

Which of the following activities will increase the short-term net cash flow for a firm? a....

Which of the following activities will increase the short-term net cash flow for a firm?

a.

Increase the average amount of time the firm takes to pay accounts.
b.

Write off old accounts receivable that are considered uncollectible.
c.

Increase the time you allow the firm's customers to pay for goods.
d.

Increase the firm's days sales outstanding ratio without an increase in sales.
e.

Increase a cash bonus for employees.
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Homework Answers

Answer #1

Option a is correct.

More time to pay accounts means more amount available for the short term since you delay in payments.

Option b - Writing off old accounts receivables means no cash flow from them. Therefore, this adversely impacts short term cash flow.

Option c - Increasing the time for customers to pay for goods will result less cash flow in the short term as your customers will pay late and you have to invest on your own.

Option d -

Days sales outstanding = (Accounts receivables / Sales) x 365 days

Now, if sales are the same, then their is one way to increase this ratio, i.e., increase in accounts receivables which means more time taken by customers to pay you. Same as optoin c.

Option e - cash bonus increase results in less cash in hand which would adversely impact the short term cash flow.

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