Which of the Following Actions Would Be Likely to Shorten

question 62

Multiple Choice

Which of the following actions would be likely to shorten the cash conversion cycle?

• A) Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.
• B) Change the credit terms offered to customers from 3/10,net 30 to 1/10,net 50.
• C) Begin to take discounts on inventory purchases;we buy on terms of 2/10,net 30.
• D) Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days.
• E) Change the credit terms offered to customers from 2/10,net 30 to 1/10,net 60.

---

Definitions:

Bad Debts Recovered

When an account receivable has been written off and is recovered, this account, which is in the Other Revenue category, is credited in the direct write-off method if the recovery is in a year following the write-off.

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.