Question

Match each business with a description of the operating cycle for the business.

Choices are a) tree nursery b) fast food restaurant c) appliance store d) electric utility e) clothing store

1. Very short- customers typically pay cash, and inventory is often held less than 1 day.

2. A few months- merchandise is typically on hand for several weeks and some customers use credit.

3. More than one year- merchandise may be in inventory for several months, and most customers will pay for purchases after 1 or 2 years.

4. Several years - a number of years are required to prepare merchandise for sale. Customers probably pay cash for most items.

5. A few months customers pay monthly. The current assets used to provide customer services are consumed within a few months.

Answer 1

1. Very short- customers typically pay cash, and inventory is often held less than 1 day.

Answer: Fast Food: Reason being Customer pay per order, inventory is of highly perishable nature, hence its shelf life is less than one day.

2. A few months- merchandise is typically on hand for several weeks and some customers use credit.

Clothing Store: The store owner purchases inventory on credit/cash stores in inventory, it is durable and remains in store for either couple of weeks or may be months. Hence when customer buys the product either on cash or on credit it receives cash and then the proceeds from sales is again used to purchase further inventories.

3. More than one year- merchandise may be in inventory for several months, and most customers will pay for purchases after 1 or 2 years.

Appliances: The appliances are highly durable and generally remains in store for a few months or may be more than a year. Customer use finance to pay for the purchase price and generally pay the entire amount within a year or two year finance.

4. Several years - a number of years are required to prepare merchandise for sale. Customers probably pay cash for most items.

Tree Nursery. It takes years to grow from seeds or saplings to trees. Hence the cash cycle is extremely long, the money invested on saplings or seeds, which are then given time to grow, till then the cash is stuck up for several years. And finally when the trees grows, then it is sold to customer, hence the cash is recovered in several years. and again with the proceeds, new saplings or seeds are purchased for another cycle.

5. A few months customers pay monthly. The current assets used to provide customer services are consumed within a few months.

Electric Utility: The electric utility is first consumed and then paid on a monthly basis, the cash revenue collected is stable and is the proceeds used for further power or electricity generation.