Collegiate Publishing Company publishes college textbooks in the sciences and humanities. More than 50 percent of Collegiate Publishing's sales occur in July, August, and December. The company's cash balance builds up until sometime after the sales take place and the books are paid for. During the rest of the year, its sales are low. The company's treasurer keeps the cash in a bank checking account earning little or no interest and pays bills from this account as they come due. To survive periods when cash receipts are low, Collegiate Publishing Company sometimes borrows money, and it repays the loans in the months when cash receipts are largest.
The company is currently considering two plans of action. First, it would work with the bookstores to implement electronic funds transfer (EFT) for payment. Second, it would invest in short-term (less than 90 days) securities that pay a higher rate of interest than the checking account.
Write a memorandum to the president that lays out the advantages of EFT and states the accounting implications (if any) of the plan to invest in short term securities?