Question

Consider the following financial statement information:

Account	Beginning Balance			Ending Balance
Inventory	$	18,600		$	19,400
Accounts receivable		4,200			4,500
Accounts payable		5,800			5,200
Net sales	76,400
Cost of goods sold	51,700

Assume all sales and purchases are on credit.: How long is the cash cycle? (Use average balance sheet account balances.) Multiple Choice 80.21 days 116.09 days 101.03 days 113.58 days 73.57 days

Answer 1

Answer:

Days Inventory Outstanding = Average Inventory / Cost of Goods sold * 365
Average Inventory = ($18,600 + $19,400) / 2
Average Inventory = $19,000

Days Inventory Outstanding = $19,000 / $51,700 * 365
Days Inventory Outstanding = 134.14 days

Days Sales Outstanding = Average Accounts Receivable / Sales * 365
Average Accounts Receivable = ($4,200 + $4,500) / 2
Average Accounts Receivable = $4,350

Days Sales Outstanding = $4,350 / $76,400 * 365
Days Sales Outstanding = 20.78 days

Days Payable Outstanding = Average Accounts Payable / Cost of Goods sold * 365
Average Accounts Payable = ($5,800 + $5,200) / 2
Average Accounts Payable = $5,500

Days Payable Outstanding = $5,500 / $51,700 * 365
Days Payable Outstanding = 38.83 days

Cash Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding
Cash Cycle = 134.14 days + 20.78 days – 38.83 days
Cash Cycle = 116.09 days