Which one of the following statements is correct concerning the cash cycle?

A) The longer the cash cycle, the more likely a firm will need external financing.
B) Increasing the accounts payable period, increases the cash cycle.
C) A positive cash cycle is preferable to a negative cash cycle.
D) The cash cycle can exceed the operating cycle if the payables period is equal to zero.
E) Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

Cash Cycle

The cash cycle is a period between the outlay of cash for the purchase of inventory and the receipt of cash from customer sales, measuring the efficiency of a company's cash management.

Accounts Payable Period

The time it takes for a company to pay off its suppliers after a purchase is made, typically measured in days.

Liberal Accounts Receivable Policy

A policy that involves offering lenient credit terms to customers, such as extended periods before payment is due, which can encourage sales but may increase the risk of bad debts.