The Difference Between the Number of Days Resources Are Tied

question 232

Multiple Choice

The difference between the number of days resources are tied up in the operating cycle and the number of days the firm can use spontaneous financing before payment is made is the

• A) cash conversion cycle.
• B) average payment period.
• C) average collection period.
• D) average age of inventory.

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Definitions:

Allowance for Doubtful Accounts

A contra asset account that estimates the portion of receivables that may not be collectible, affecting a company’s net income and assets.

Bad Debts Expense

An expense reported on the income statement, representing the estimated irrecoverable amounts from customers who can no longer pay their obligations.

Direct Write-off Method

A method of accounting for bad debts that involves charging unpaid customer invoices directly to the expense account at the time they are deemed uncollectible.

Net Realizable Value

The estimated selling price of an asset in the ordinary course of business minus any costs associated with its sale or disposal.