Question

Based on the following accounting information, please calculate

Inventory period

Receivable period

Operating Cycle

Cash Cycle

Inventory:

Beginning = 200,000

Ending = 300,000

Accounts Receivable:

Beginning = 150,000

Ending = 200,000

Accounts Payable:

Beginning = 50,000

Ending = 100,000

Net sales = 1,500,000

Cost of Goods sold = 800,000

Answer 1

Average inventory = ( beginning inventory + ending inventory)/2

Average inventory = (200000+300000)/2

Average inventory = 250000

Average Receivables= ( beginning Receivables+ ending Receivables)/2

Average Receivables = (150000+200000)/2

Average Receivables = 175000

Average Payables= ( beginning Payables+ ending Payables)/2

Average Payables = (50000+100000)/2

Average Payables = 75000

Purchases = COGS + beginning inventory - ending inventory

Purchases = 800000+200000-300000

Purchases = 700000

Inventory turnover = COGS/inventory

Inventory turnover = 800000/250000

Inventory turnover = 3.2

days of inventory on hand = number of days in a year/inventory turnover

days of inventory on hand = 365/3.2

days of inventory on hand = 114.06

Receivables turnover = Credit sales/receivables

Receivables turnover = 1500000/175000

Receivables turnover = 8.57

days of sales outstanding = number of days in a year/receivables turnover

days of sales outstanding = 365/8.57

days of sales outstanding = 42.59

Accounts payables turnover = purchases/payables

Accounts payables turnover = 700000/75000

Accounts payables turnover = 9.33

days of payables outstanding = number of days in a year/accounts payable turnover

days of payables outstanding = 365/9.33

days of payables outstanding = 39.12

Operating cycle = days of sales outstanding + days of inventory on hand

Operating cycle = 42.59+114.06

Operating cycle = 156.65

Cash conversion cycle = Operating cycle - days of payables outstanding

Cash cycle = 156.65-39.12

Cash cycle = 117.53