Chapter 15
Current Liabilities Management

( Learning Goals

1. Review the key components of credit terms, accounts payable, and the procedures for analyzing them.

2. Understand the effects of stretching accounts payable on their cost and on the use of accruals.

3. Describe interest rates and the basic types of unsecured bank sources of short-term loans.

4. Discuss the basic features of commercial paper and the key aspects of international short-term loans.

5. Explain the characteristics of secured short-term loans and the use of accounts receivable as short-term-loan collateral.

6. Describe the various ways in which inventory can be used as short-term-loan collateral.

( True/False

1. Accounts payable are spontaneous secured sources of short-term financing that arise from the normal operations of the firm. Answer: FALSE Level of Difficulty: 1 Learning Goal: 1 Topic: Accounts Payable

2. Notes payable can be either spontaneous secured or spontaneous unsecured financing and result from the normal operations of the firm. Answer: FALSE Level of Difficulty: 1 Learning Goal: 1 Topic: Notes Payable

3. Accounts payable result from transactions in which merchandise is purchased but no formal note is signed to show the purchaser’s liability to the seller. Answer: TRUE Level of Difficulty: 1 Learning Goal: 1 Topic: Accounts Payable 4. In credit terms, EOM (End-of-Month) indicates that the accounts payable must be paid by the end of the month in which the merchandise has been purchased. Answer: FALSE Level of Difficulty: 1 Learning Goal: 1 Topic: Analyzing Credit Terms

5. Accruals are liabilities for services received for which payment has yet to be made. Answer: TRUE Level of Difficulty: 1 Learning Goal: 2 Topic: Accrued Liabilities

6.