Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881



Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Describe the basic cash management principles.

To determine


Cash management is an important function at all companies because business is really a continuous cycle of paying and receiving cash.


We can follow these principles through the operating cycle:

  1. Buying Inventory: The first stage of the operating cycle is buying inventory. An important aspect of cash management is to keep inventory levels low. This decreases the need for cash.
  2. For example, Dell went from holding approx. 11 weeks of sales in inventory in 1991 to under 1 week in 2001, while car companies such as Toyota time the delivery of parts such as windows and seats down to the minute.
  3. Paying for Inventory: The second stage of the operating cycle if paying for the inventory. A good cash management principle is to delay payments as long as possible to earn maximum interests. The longer the company keeps cash, the more interest it can collect...

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