Chapter 26, Problem 8CQ

Summary Introduction

To explain: The effect of change in payable policy on operating cycle and on cash cycle.

Operating Cycle:

Operating cycle is a time period between the sale of product and the recovery of cash from the customer. Operating cycle is also known as the business cycle, it involves every quantitative business activity of the company.

Cash Cycle:

The time period between the payment of cash to the supplier for the purchase of raw material and the receipt of cash from customer for the sale of product is known as cash cycle of a business. If the cash cycle is shorter the amount of available cash is more and the company has no need to borrow cash from outsiders.