When a firm improves (lowers) its average collection period it generally:
A) Requires additional cash investment in inventory
B) Releases cash locked up in accounts receivables
C) Does not alter its cash position
D) A firm cannot reduce its inventories

Question

Quizplus · Accepted Answer

When a firm improves (lowers) its average collection period, it means that it is collecting its accounts receivables more quickly. This will release cash that was previously locked up in accounts receivables, resulting in an increase in cash position. It does not require additional cash investment in inventory or affect inventory levels.

When a Firm Improves (Lowers) Its Average Collection Period It