A company reports that to maintain good relations
A company reports that to maintain good relations with its suppliers, it has entered into a financing arrangement with a bank whereby it will periodically have the bank pay its suppliers the amounts owed and it will then repay the bank in the following period. The motivation for the company’s behavior. is most likely to:
A. improve its current ratio.
B. improve its relations with its suppliers.
C. manage the timing of operating cash flows.
参考解答
456***100
2024-11-08 08:05:07
Ans:C.
The company can choose when to enter into the short-term borrowing with the bank and reclassify its accounts payable into short-term financing. It will likely do so when cash flows are seasonally strong, thereby reducing operating cash flows but increasing financing cash flows. On repayment, the cash outflow is treated as a financing activity (loan repayment) not an operating cash flow. The result is that the company can manipulate the timing of reported cash flows since the timing and extent of vendor financing is at management’s discretion.
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