Question

In: Accounting

Calculate the operating cash cycle in days if all sales are for cash, inventory is turned...

Calculate the operating cash cycle in days if all sales are for cash, inventory is turned over 7 times a year and creditors are paid on average 5 times a year.

Select one:

a. -52.1 days

b. -20.9 days

c. 52.1 days

d. 20.9 days

Expert Solution

Answer : Option (b) - 20.9 days

Proof :

Operating cycle in days = No. of days in a year / No of times inventory is turned over in a year

= 365 / 7

Operating cycle in days = 52.1 days

Average payment period :

Average payment period in days = No of days in year / No of times creditors payed

= 365 / 5

Average payment period indays = 73 days.

Operating cash cycle = operating cycle - Average payment period

= 52.1 - 73

Operating cash cycle = -20.9 days

Operating cash cycle indicates the performance of company, If operating cash cycle in days is less then efficiency of business is high.

ekkarill92 answered 2 years ago

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