Assume all sales and purchases are on credit. Which one of the following stateme

Question

Assume all sales and purchases are on credit. Which one of the following statements is correct concerning the cash cycle?

a. the cash cycle starts when inventory is purchased

b. the longer the cash cycle, the more likely a firm will need external financing

c. increasing the accounts payable period increases cash cycle (*picked answer and was wrong*)

d. the cash cycle can exceed the operating cycle if the payables period is equal to zero

e. adopting a more liberal accounts receivable policy will tend to decrease the cash cycle

Assume all sales and purchases are on credit. Which one of the following statements is correct concerning the cash cycle?

a. the cash cycle starts when inventory is purchased

b. the longer the cash cycle, the more likely a firm will need external financing

c. increasing the accounts payable period increases cash cycle (*picked answer and was wrong*)

d. the cash cycle can exceed the operating cycle if the payables period is equal to zero

e. adopting a more liberal accounts receivable policy will tend to decrease the cash cycle

Explanation / Answer

a the cash cycle starts when inventory is purchased FALSE b the longer the cash cycle, the more likely a firm will need external financing TRUE c increasing the accounts payable period increases cash cycle FALSE d the cash cycle can exceed the operating cycle if the payables period is equal to zero TRUE e adopting a more liberal accounts receivable policy will tend to decrease the cash cycle FALSE

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