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Unformatted text preview: tions: The loans of the commercial bank are classified as A/R and the deposits as Notes Payable in the case. For most businesses, $1 of revenue (on credit) creates $1 of A/R. However, for the advertising agency $1 of revenue on media purchases creates $1/0.15 = $6.67 of A/R. This may produce a dramatic distortion in the reported ACP. Firms transacting with customers in cash will have an ACP of “zero.” Firms transacting with customers on a credit card basis, with the card issued by an unrelated card‐issuing bank, usually receive payment from the bank within 1 or 2 weeks of the charge date. Business to business transactions or business to consumer on open account usually have credit terms of 30 days or longer....
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This document was uploaded on 02/16/2014 for the course FIN 404 at University of Miami.
- Spring '14