If the use of supplier financing decreases and is replaced by cash financing for the same level of business activity, the cash cycle will:
A) increase because days in payables decrease.
B) stay the same because the change is only on the operating cycle.
C) decrease because days in payables decrease.
D) stay the same because business activity does not change.
E) stay the same because cash is used for payment.

Question

Quizplus · Accepted Answer

The cash cycle will increase because days in payables decrease when a company shifts from supplier financing to cash financing. This is because supplier financing typically allows a company to delay payment, extending the days in payables, whereas cash financing requires immediate payment, reducing the days in payables and thus increasing the cash cycle.

If the Use of Supplier Financing Decreases and Is Replaced