RSM219H1 Chapter Notes -Accounts Payable, Retained Earnings, Cash Conversion Cycle
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RSM219H1 Full Course Notes
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Document Summary
Operating with a negative cash balance is only possible if the company"s bank permits it to overdraw its account ; allows more cash to be withdrawn than was deposited aka a loan. Line of credit : the bank sets a limit on how much can be borrowed in this way and establishes a repayment schedule if the line of credit is used. Cash to cash cycle/ cash conversion cycle shows the lead/leg relationship between the cash going out to buy inventory and the cash coming in from collections of accounts receivable. The statement of earnings summarizes the profitability of the company"s operations, while the statement of cash flows summarizes the cash flows, collection of cash. May divert customers to other competitors by reducing net income: significant lead/lag relationships in cash inflows and outflows. Issue additional shares (equity financing) or to borrow the cash (debit financing)