COMMERCE 3FA3 Chapter : 3FA3-CH18.docx

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3FA3
• Professor: Trevor Chamberlain

Document Summary

Operating cycle: the time period between the acquisition of inventory and when cash is collected from receivables. Inventory period: the time it takes to acquire and sell inventory. Accounts receivable period: the time between sale of inventory and collection of the receivable. Accounts payable period: the time between the receipt of inventory and payment for it. Cash cycle: the time between cash disbursement and cash collection. Cash flow time line: graphical representation of the operating cycle and the cash cycle. Carrying costs: costs that rise with increases in the level of investment in current assets. Shortage costs: costs that fall with increases in the level of investment in current assets. Cash budget: a forecast of cash receipts and disbursements for the next planning period. Operating loan: loan negotiated with banks for day-to-day operations. Letter of credit: a written statement by a bank that money will be paid, provided conditions specified in the letter are met.