If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be:
A) longer than its operating cycle
B) the same length as its operating cycle
C) shorter than its operating cycle
D) the same length as its sales turnover cycle

Question

Quizplus · Accepted Answer

Purchasing materials on credit and having accounts payable allows a firm to delay cash outflows, effectively shortening the cash conversion cycle compared to the operating cycle. The cash conversion cycle measures the time between when a company pays for its inventory and when it receives cash from sales, and having accounts payable extends the time before the company needs to pay for its inventory, thus shortening the cycle.

If a Firm Purchases Materials on Credit and Thus Has