Question

In: Accounting

Accounts payable, end of year $ 9,803 $ 13,748 Accounts receivable, net, end of year 31,885...

Accounts payable, end of year $ 9,803 $ 13,748
Accounts receivable, net, end of year 31,885 19,286
Inventory, end of year 12,104 11,655
Net sales 157,000 104,000
Cost of goods sold 76,000 115,000


(1) Use the information above to compute the number of days in the cash conversion cycle for each year.
(2) Did the company manage cash more effectively in the current year?

Use the information above to compute the number of days in the cash conversion cycle for each year. (Use 365 days in a year. Round calculations to the nearest whole day.)
Current year Prior year
Cash conversion cycle days days

Solutions

Expert Solution

ASSUMPTION Assuming End Inventory balances , Account receivable balances and Account payable balances are AVERAGE balance for prior year
Cash conversion time=DIO+DSO−DPO
where:
DIO=Days of inventory outstanding
(also known as days sales of inventory)
DSO=Days sales outstanding
DPO=Days payables outstanding
​		 Current year Prior year
                     60 Days                                                                  61 Days Yes Company has managed the cash effectively during the current year.
Calculation
DIO= Average Inventory/COGS*365
DSO= Average Account receivable/Total credit sales*365
DPO= Average account payable/COGS*365
Current year Previous year Calculation Current year Previous year calculation
DIO                57.05                36.99 ((12104+11655)/2)/76000*365 11655/115000*365
DSO=                59.48                67.69 ((31885+19286)/2)/157000*365 19286/104000*365
DPO=                56.55                43.63 ((9803+13748)/2)/76000*365 13748/115000*365

If you've any further query please let me know in the comment section. Please note that opening inventory, account payable and opening account receivable data of the previous year was not given. hence Average of these were assumed to be closing balances of previous year.

Please give "Thumps up" If you are satisfied with my answers.  

ekkarill92 answered 1 year ago
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