Significance in working capital cycle, Financial Accounting

Assignment Help:

For several firms trade payables - suppliers of goods and services - represent the major component of current liabilities the amounts owed by the company which have to be repaid within the next accounting period. Together with inventory and receivables - current liabilities current assets - cash, determine the firm's net working capital position example the net sum it invests in working capital.

Different suppliers will work different credit periods but the average trade credit period in days can be calculated as follows

Trade payables/Credit purchases × 365

Occasionally it is expressed in terms of total purchases and sometimes in terms of overall cost of sales. The length of the trade credit period depends partially on competitive relationships among suppliers and partly on the firm's own working capital policy.

The trade credit period is an significant element in a company's cash conversion cycle - the length of time between a firm making payment for its purchases of materials and labour and receiving payment for its sales. The time period above which net current assets have to be financed depends not only on policy towards suppliers but also on receivables management and inventory control policy

Cash conversion cycle = [Receivables days + inventory period] - [trade credit period]


Related Discussions:- Significance in working capital cycle

Writing a dissertation, I want to do a custom dissertation on IAS 40 invest...

I want to do a custom dissertation on IAS 40 investment property which needs to include a brief outline, positive as well as negative international critique with respect to the sta

Primary restriction of making demand, Q. Primary restriction of making dema...

Q. Primary restriction of making demand? The primary restriction of making demand forecasts lies in the fact that they are forecasts and hence their reliability is unknown. Mos

Investment of accumulated income-trusts laws and accounts, Investment of ac...

Investment of accumulated income The income accumulations must be invested from time to time and the investments earmarked as being on Accumulations Account. The income aris

Case, I need help on my accounting assignment

I need help on my accounting assignment

Fraudulent preferences-fraudulent conveyances, Fraudulent preferences ...

Fraudulent preferences The trustee can set aside any transaction effected within the six months preceding the presentation of the petition in circumstances such as to make it

What should be the basic earnings per share, Information concerning the cap...

Information concerning the capital structure of Piper Corporation is as follows: December 31, 2011 2010 Common stock 150,000 shares 150,000 shares Convertible preferred stock 15,00

Explain the matching principle, Q. Explain the Matching Principle? Matc...

Q. Explain the Matching Principle? Matching Principle - A basic concept of basic accounting. In any one given accounting period, you must try to match the revenue you are repor

Selective inventory control, ABC Analysis: ABC that is Always Better Co...

ABC Analysis: ABC that is Always Better Control analysis is an application of the principle of 'Management by Exception' to the field of inventory control. If we seem at the in

Give reasons why both options should be used, Apple Corporation has been he...

Apple Corporation has been hearing complaints from some shareholders about returning some of the $150 billion in cash that the corporation has. Some shareholders think a large divi

List four limitations of ratio analysis, SECTION B QUESTION 2: Tw...

SECTION B QUESTION 2: Two companies Juk Ltd and Roop Ltd operate in the tourism sector. Financial forecasts are provided below: Income Statement for yea

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd