COMMERCE 3FA3 Chapter Notes - Chapter 18-19: Cash Flow, Current Liability, Accounts Payable

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

Document Summary

The basic statement of financial position identity can be written as: This tells us in general terms that some activities naturally increase cash and some activities decrease it. We can list these along with an example of each as follows: Activities that increase cash: i(cid:374)(cid:272)(cid:396)easi(cid:374)g lo(cid:374)g-term debt (borrowing long-term), i(cid:374)creasing equity (selling some stock), i(cid:374)(cid:272)(cid:396)easi(cid:374)g (cid:272)u(cid:396)(cid:396)e(cid:374)t lia(cid:271)ilities (cid:894)getti(cid:374)g a 90-day loan), de(cid:272)(cid:396)easi(cid:374)g (cid:272)u(cid:396)(cid:396)e(cid:374)t assets othe(cid:396) tha(cid:374) (cid:272)ash (cid:894)selli(cid:374)g so(cid:373)e i(cid:374)ve(cid:374)to(cid:396)(cid:455) fo(cid:396) (cid:272)ash(cid:895), de(cid:272)(cid:396)easi(cid:374)g fi(cid:454)ed assets (cid:894)selli(cid:374)g so(cid:373)e p(cid:396)ope(cid:396)t(cid:455)(cid:895). 18. 2 the operating cycle and the cash cycle. 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. Cash cycle: the time between cash disbursement and cash collection. Accounts payable period: the time between receipt of inventory and payment for it.