What Is the Purpose of a Lockbox Plan

question 118

Multiple Choice

What is the purpose of a lockbox plan?

• A)It is used for safekeeping cash and marketable securities.
• B)It is used to identify inventory safety stocks.
• C)It is used to slow down the collection of cheques a firm writes.
• D)It is used to speed up the collection of cheques received.

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Definitions:

Operating Cycle

The period between the acquisition of inventory and the collection of cash from receivables, indicating the efficiency of a company's operations.

Inventory Period

The duration of time goods remain in inventory before being sold.

Accounts Receivable Period

The accounts receivable period is the average time it takes for a business to receive payments owed by its customers for goods or services sold on credit.

Cash Cycle

This term describes the time it takes for a business to convert its investments in inventory and other resources into cash flows from sales.