CPA Business Environment and Concepts (BEC) : Financial Management Process
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #1 : Cash Conversion Cycle
As a company becomes more conservative with respect to working capital policy, it would tend to have a(n):
Decrease in the operating cycle
Decrease in the quick ratio
Increase in the ratio of current liabilities to noncurrent liabilities
Increase in the ratio of current assets to noncurrent assets
Increase in the ratio of current assets to noncurrent assets
An increase in the ratio of current assets to non-current assets would be indicative of an increasingly conservative working capital policy.
Example Question #4 : Cash Conversion Cycle
Each of the following items is included when computing a firm's target cash conversion cycle, except the:
Cash discount period
Days of payables outstanding
Days in inventory
Days sales in accounts receivable
Cash discount period
The cash conversion cycle does not include the cash discount period. Cash discounts would be considered as a component of receivables collections and payables deferrals.
Example Question #5 : Cash Conversion Cycle
An increase in sales collections resulting from an increased cash discount for prompt payment would be expected to cause a:
Increase in bad debt issues
Decrease in the cash conversion cycle
Increase in the average collection period
Increase in the operating cycle
Decrease in the cash conversion cycle
An increase in sales collections would decrease the cash conversion cycle.
Example Question #2 : Cash Conversion Cycle
The cash conversion cycle is the length of time from an initial expenditure for production to the date:
Cash is recorded on the books
Cash is collected from customers offset by the length of time it takes to pay vendors
Cash is paid to employees for production
Cash is collected from suppliers
Cash is collected from customers offset by the length of time it takes to pay vendors
This is the definition and purpose of the cash conversion cycle which exists to quantify a firm's ability to generate cash flow.
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