Cash shortages and surpluses occur due to a lack of synchronization between the rate at which customer receivables are collected and the rate at which disbursements must be made for raw materials, direct labor, overhead, and selling and administrative costs.

Question

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Cash shortages and surpluses arise because the timing of cash inflows from customer receivables does not always match the timing of cash outflows for expenses such as raw materials, labor, and overhead, leading to mismatches in cash flow.

Cash Shortages and Surpluses Occur Due to a Lack of Synchronization