A Circular-Flow Diagram Is a Model That

question 43

Multiple Choice

A circular-flow diagram is a model that

• A)helps to explain how participants in the economy interact with one another.
• B)helps to explain how the economy is organized.
• C)incorporates all aspects of the real economy.
• D)Both (a)and (b)are correct.

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Definitions:

Accounts Receivable Period

Also known as the average collection period, it refers to the average number of days it takes a company to collect payments from its credit sales.

Collecting Receivables

Collecting receivables involves the process or steps taken by a business to ensure that payments are received from customers for goods or services provided on credit.

Cash Cycle

The period of time between a company's purchase of inventory and the receipt of cash from accounts receivable.

Operating Cycle

The duration of time from the purchase of inventory to the collection of cash from sales, reflecting the efficiency of a company's operations.