Comments on: What your boss expects HR to know about business

By: John

John — Wed, 18 Nov 2009 12:44:46 +0000

The correct answer for number 2 is a. Customers paying bills sooner means the company has more cash in it bank account. Customers paying later increases the amount due in accounts receivable, and means less cash in the checking account. Neither have any bearing on profit as both cash and account receiveable are considered “assets”, until customers fail to pay their billsl. Profits are impacted only after the past due balances are “wrtitten off”.

When companies purchase assets, they have less cash. But the value of the asset stays on the books, so it is still possible for a company to be profitable with little or no cash, because of their non-cash assetts. For example, they have a huge amount in accounts receivealbe, or in inventory.

By: cynthia

cynthia — Tue, 17 Nov 2009 23:27:25 +0000

I don’t understand Mary Pineda’s answer..

By: nr

nr — Mon, 16 Nov 2009 22:19:25 +0000

Sorry Eric, I disagree. B, C, and D cannot be the answers because they are non-cash transactions. In this context, “a” is the best answer. Customers paying their bills sooner is a direct cash transaction (Debit cash, credit Accounts Receivable).

By: Eric Griesel

Eric Griesel — Mon, 16 Nov 2009 22:12:40 +0000

Gordon, you have to read my caveat as to answer A. Without more, I’d agree, but there are always other issues to factor in.

By: Julie

Julie — Mon, 16 Nov 2009 22:07:14 +0000

I am just very pleased that I did know the answers . . . that BSBA finally did something for me, lol! ; )

By: Mary Pineda

Mary Pineda — Mon, 16 Nov 2009 21:50:52 +0000

The answer to number 2 is correct as stated.

Why not a: Even if A/P were to increase, if ALL customers were paying their bills in a more timely fashion, then cash increases.

Why not b: Even if A/R increases, that does not mean there is an increase in cash. A customer has to pay the bill first. If not, the A/R can be written off as bad debt

Why not d: Retained earnings is the net income or loss that is transferred from the income statement to the balance sheet at the end of the calendar or fiscal year. This is not a cash transaction.

By: MAC

MAC — Mon, 16 Nov 2009 21:49:51 +0000

We should all know the basics. I know that if I take the time to put numbers, charts, basically quantitative data into my analysis that it does assist “me” in getting some of the tools that I need to assist my employees and do my job better.

Melissa

By: Gordon

Gordon — Mon, 16 Nov 2009 21:45:59 +0000

I did misunderstand # 3 though…

By: Gordon

Gordon — Mon, 16 Nov 2009 21:38:49 +0000

Sorry Eric, I don’t agree with you…the answer is A. Cash flow is literally the flow of “Cash”. The company has more available cash today when customers pay their bills early. Accounts Payable only affects your cash flow today in that it means you have more cash because you still have not paid those payables. None of the other answers increase cash on hand. A company can certainly increase their profit (c) without having more cash in hand. Accounts receivable is money (cash) that you are loaning to customers because they haven’t paid you yet. Retained earnings are just profits that are being “retained” or reinvested in the business.

By: Melissa

Melissa — Mon, 16 Nov 2009 21:30:27 +0000

Eric, the answer to # 2 is a because customers paying their bills sooner increases the amount of cash in the company’s checking account today. Profit increasing does not mean they have the cash on hand today. The key to the question is the cash today part of it.