A Firm on Average Collects Cheques Totalling $250,000 Per Day

question 65

True/False

A firm on average collects cheques totalling $250,000 per day.It takes the firm approximately 4 days to convert the cheques into usable cash.Assume (1) a lockbox system could be employed that would reduce the cash conversion procedure to 2 1/2 days and (2) the firm could invest any additional cash generated at 6% after taxes.The lockbox system would be a good buy if it costs only $25,000 annually.

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Definitions:

Ending Inventory

Ending inventory is the total value of goods available for sale at the end of an accounting period, calculated using the beginning inventory, additions, and subtractions of goods sold.

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life.

LIFO

"Last In, First Out", an inventory costing method where the most recently produced or acquired items are recorded as sold first.

FIFO

An inventory valuation method where the first items placed into inventory are the first ones sold; stands for First-In, First-Out.