Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

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How is the annual benefit of cash collections calculated?

Daily cash receipts x days of reduced float

(Daily cash receipts x days of reduced float) x opportunity cost of funds

The annual benefit of cash collections is calculated by taking into account both the daily cash receipts and the opportunity cost of funds. By multiplying the daily cash receipts by the number of days of reduced float, you determine the total cash flow that could be used sooner due to the faster collection of cash. This benefits the organization by allowing it to utilize those funds earlier.

Adding the opportunity cost of funds into the calculation reflects the potential income that could be earned on the cash if it were invested instead of being delayed due to slow cash collections. Therefore, the full calculation—combining the immediate cash benefits from earlier availability and the potential returns from those funds—captures the total annual benefit to the organization.

This comprehensive approach provides a clear view of how optimizing cash collection processes can enhance financial performance.

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Opportunity cost of funds x total cash collections

Daily cash receipts + opportunity cost of funds

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