Describe the operating cycle and explain the principles of cash management.

- The operating cycle of the business starts when the business uses cash to purchase inventory.

- When a business sells goods on credit, creating accounts receivable, cash is not replenished until the receivables are collected, which completes the operating cycle.

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

- Although aspects of cash management have become extremely sophisticated, basic strategies are:

- keeping inventory levels low
- delaying payment of liabilities as long as possible
- speeding up collection of accounts receivable
- investing idle cash to earn the greatest possible return while still keeping it available when needed