If a firm only accepts cash for the purchase of its products, what effect would this have on the operating and cash cycles?
A)The operating and cash cycles would be equal.
B)The operating and cash cycles would decrease relative to offering credit to customers.
C)Only the cash cycle would decrease relative to offering credit to customers.
D)Only the operating cycle would increase relative to offering credit to customers.

Question

Quizplus · Accepted Answer

If a firm only accepts cash for the purchase of its products, it would decrease both the operating cycle and cash cycle compared to offering credit to customers. The operating cycle measures the time it takes to purchase, produce, and sell a product, while the cash cycle measures the time it takes to convert inventory into cash. Without offering credit, the firm can quickly convert inventory into cash and therefore reduce both cycles.

If a Firm Only Accepts Cash for the Purchase of Its