How Companies Report Cash Flow
1.
Why isn’t the net income reported on a corporate balance sheet a good estimate of the increase in cash that occurred during the year?
2.
What is the difference between a corporate cash budget and a projected statement of cash flows?
Trade Credit and Interest Rates on Short-Term Borrowing
3.
Explain this statement: Accounts payable and accounts receivables are essentially financial opposites.
4.
Accounts payable is often called “interest-free financing.” As such, explain why a company would choose to pay the amount owed on its purchases of inventory 50 days early. Base your answer on these facts:
- The annualized cost of forgoing an early payment discount is approximately 16 percent.
- The company’s cost of borrowing short-term on a bank line of credit is 9 percent.