Question

Describe the operating cycle of a Merchandiser. (100+ words)

Answer 1

Operating cycle of a Merchandiser

The operating cycle of a merchandiser includes cash, purchase of raw materials, work in process, finished goods, sales and accounts receivable.

The operating cycle starts and ends with cash. It is a continuous process throughout the life of the business.

The cycle starts with cash. So, the merchandiser purchase raw material from the supplier by paying cash or sometimes the merchandiser purachase on credit from suppliers.

After purchasing the raw materials, the merchandiser make it goes through the production process. The materials which is goes through the production is work in process. In the process of production, the business have to face lot of expenses like wages of workers, factory rent, electricity charges etc.

After the work in process, the business get finished products. The finished products is ready to use, but it also requires some additional expenses like packaging, labelling, insurance etc.

Finished goods are ready to use. So, the business want to sell it products. At this stage also, the merchandiser faces lot of expenses like advertising, transportation etc.

The sales is done for cash or for credit. If the sales is done for credit, there arise accounts receivable or debtors. Then, the merchandiser wants to collect the cash from the debtors within the collection period.

So, the merchandiser collects cash from accounts receivable. The merchandiser use that cash again in the business to purachse raw materials. This process is continue till the end of the business.