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

Question

Quizplus · Accepted Answer

A longer cash cycle means that cash is tied up in the operating cycle for a longer period of time, which makes it more likely that a firm will need external financing to cover its short-term cash needs. The cash cycle starts when cash is paid for inventory, not when inventory is purchased. Increasing the accounts payable period actually reduces the cash cycle by increasing the amount of time before cash must be paid out for purchases. The cash cycle cannot exceed the operating cycle unless the payables period is negative, not zero. Adopting a more liberal accounts receivable policy will tend to increase the cash cycle by delaying the receipt of cash from customers.

Assume All Sales and Purchases Are on Credit