Business Administration - Management FIS403 Study Guide - Final Guide: Accounts Payable, Accounts Receivable, Leaseback
19 Dec 2016
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(cid:862)e(cid:454)tra(cid:863) i(cid:374)ve(cid:374)tor(cid:455) the fir(cid:373) keeps i(cid:374) sto(cid:272)k i(cid:374) (cid:272)ase of u(cid:374)foresee(cid:374) problems. Management decision based on risk of stock out, desired level of service. Trade credit from suppliers spontaneous source. Largest source of short-term financing for a firm. Trade payables are a spontaneous source of funds. Usually a 30-60 day grace period before a bill is due. Annual purchases are 9,000,000 with a 35 day grace period. What is the average accounts payable balance: 9,000,000 x 35/365 = ,013. 70. If purchases increase to 10,000,000 what is the increase to the average accounts payable balance: 10,000,000 x35/365 = ,904. 11. Increase of ,904. 11 - ,013. 70 = ,890. 41. A self-liquidating loan generates cash flows that form a built-in or automatic repayment scheme. Short-term loans take on the nature of longer-term financing through renewing arrangements. Demand loans are payable (or can be advanced) as desired and the interest rate fluctuates with prime.
