Question

In: Finance

Account Beginning Balance Ending Balance Inventory $2,600 $2,890 Accounts receivable $3,222 $2,800 Accounts payable $2,500 $2,670...

Account

Beginning Balance

Ending Balance

Inventory

$2,600

$2,890

Accounts receivable

$3,222

$2,800

Accounts payable

$2,500

$2,670

Net sales

$24,589

Cost of goods sold

$19,630


What is the operating cycle?

a.

51.04 days

b.

95.74 days

c.

48.07 days

d.

99.11 days

  1. Following Question 1, what is the cash cycle?

a.

44.70 days

b.

48.07 days

c.

47.67 days

d.

51.04 days

Solutions

Expert Solution

Average inventory = ( beginning inventory + ending inventory)/2
Average inventory = (2600+2890)/2
Average inventory = 2745
Average Receivables= ( beginning Receivables+ ending Receivables)/2
Average Receivables = (3222+2800)/2
Average Receivables = 3011
Average Payables= ( beginning Payables+ ending Payables)/2
Average Payables = (2500+2670)/2
Average Payables = 2585
Inventory turnover = COGS/inventory
Inventory turnover = 19630/2745
Inventory turnover = 7.15
days of inventory on hand = number of days in a year/inventory turnover
days of inventory on hand = 365/7.15
days of inventory on hand = 51.05
Receivables turnover = Credit sales/receivables
Receivables turnover = 24589/3011
Receivables turnover = 8.17
days of sales outstanding = number of days in a year/receivables turnover
days of sales outstanding = 365/8.17
days of sales outstanding = 44.68
Accounts payables turnover = COGS/payables
Accounts payables turnover = 19630/2585
Accounts payables turnover = 7.48
days of payables outstanding = number of days in a year/accounts payable turnover
days of payables outstanding = 365/7.48
days of payables outstanding = 48.8
Operating cycle = days of sales outstanding + days of inventory on hand
Operating cycle = 44.68+51.05
Operating cycle = 95.73
Cash conversion cycle = Operating cycle - days of payables outstanding
Cash cycle = 95.73-48.09
Cash cycle = 47.64

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