Asked by Kamri Smith on Jun 04, 2024
Verified
The Jennings Company recently hired a new chief financial officer. One of the first changes she made was to delay the payment of all bills by ten days. The net effect of this action is to decrease the:
A) Inventory period.
B) Accounts receivable turnover rate.
C) Cash cycle.
D) Accounts payable period.
E) Inventory turnover rate.
Cash Cycle
The period between the outlay of cash for raw materials and receiving payment from customers for goods or services sold.
Inventory Period
The average time it takes for a company to sell through its inventory, calculated by dividing the total inventory by the cost of goods sold and then multiplying by 365 days.
Accounts Payable Period
The average time it takes for a business to pay off its suppliers and vendors.
- Pinpoint ways to refine the functioning of the operating and cash cycles.
Verified Answer
RP
Rushil PatelJun 05, 2024
Final Answer :
C
Explanation :
Delaying the payment of bills by ten days increases the accounts payable period, which is a component of the cash cycle. The cash cycle is the amount of time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. By delaying payments, the company is effectively extending the time it holds onto its cash, thus decreasing the cash cycle.
Learning Objectives
- Pinpoint ways to refine the functioning of the operating and cash cycles.