A Firm Has Arranged for a Lockbox System to Reduce

question 284

Multiple Choice

A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm's cash conversion cycle ________.

• A) increases by 3 days
• B) decreases by 3 days
• C) increases by 6 days
• D) decreases by 6 days

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Definitions:

Contractual Obligations

Responsibilities, duties, or promises that are legally binding, as outlined in a contract between parties.

Limited Personal Liability

A legal principle whereby an individual's responsibility for business debts and obligations is restricted, typically in the context of limited liability companies or corporations.

Partnership Creditors

Individuals or entities to whom a partnership owes money or has financial obligations.

Ratify

The act of formally approving a contract or agreement, making it officially valid and enforceable.