Your firm decides to increase the time allowed customers to pay their bills from 30 to 40 days. All else the same, this action will _____________ and _______________.

Question

Quizplus · Accepted Answer

Increasing the time customers are allowed to pay their bills from 30 to 40 days increases the firm's accounts receivable period, which is part of the operating cycle. Since the operating cycle includes the time to convert inventory and receivables to cash, extending the receivables period also increases the cash cycle, which is the time needed to convert inventory into cash minus the accounts payable period.

Your Firm Decides to Increase the Time Allowed Customers to Pay