If a Firm Has a Cash Cycle of 25 Days

question 14

Multiple Choice

If a firm has a cash cycle of 25 days and an operating cycle of 57 days, what is its average payment period?

• A) 25 days
• B) 32 days
• C) 57 days
• D) 82 days

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Definitions:

Allowance Methods

Accounting techniques used to anticipate and account for future loan losses by establishing an allowance for doubtful accounts.

Bad Debt

Money owed to a company that is unlikely to be paid by the debtor, often leading to the creditor writing it off as a loss.

Percentage of Sales

A method used to forecast financial figures, such as net income or expenses, based on a percentage of the sales volume.

Dishonored

Refers to a check or promissory note that has been refused by the bank on which it was drawn because of insufficient funds or other reasons.