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Chapter 7-9 Definitions

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Financial flexibility– the ability to use its financial resources to adapt to change. Liquidity- the availability of a company’s liquid assets to pay its bills. Cash- the resource on hand to meet planned payments and emergency situations. (current assets includes coins, currency, unrestricted funds on deposit with a bank, negotiable checks, and bank drafts) Cash equivalents- short term highly liquid investments that are readily convertible into known amounts of cash. Cash planning systems- methods and procedures that a company uses to ensure that it has adequate cash available to meet maturing obligations. Cash control systems- methods a company uses to safeguard its funds. Cash budget- a plan of cash activity that forecasts cash receipts and payments, and identifies when the company might have too much or too little cash. Internal control- the process a company uses so that its financial reports are reliable, its operations are effective/efficient, and it complies with laws/regulations. Electronic funds transfers-finds are transferred between companies electronically without the need for a check. Compensating balances-a required deposit to the bank for compensating them for granting the loan. Current assets- receivables expected to be collected within one year or the current operating cycle, whichever is longer, the rest is classified as Noncurrent. Trade receivables- the majority of a company’s total receivable balance. Account receivable- non-written promises by customers to pay for goods or services. Notes receivables- unconditional written agreements to receive a certain sum of money on a specific date. Nontrade receivables- arise from transactions that are not directly related to the sale of the company’s goods and services. Realization has occurred- a noncash resource is exchanged for cash or a near cash resource. Revenue is earned- the earning process is

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