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?
a. 0.21 days
b. 116.09 days
c. 01.03 days
d. 113.58 days
e. 73.57 days

Answer 1

The cash cycle can be calculated by adding the average collection period and the average payment period. To calculate the average collection period, divide 365 by the accounts receivable turnover. To calculate the average payment period, divide 365 by the accounts payable turnover. Add the two periods together to get the cash cycle.

Step-by-step explanation:

The cash cycle can be calculated by adding the average collection period and the average payment period. The average collection period is the time it takes for a company to collect its accounts receivable, while the average payment period is the time it takes for a company to pay its accounts payable.

To calculate the average collection period, we use the formula: Average Collection Period = 365 / Accounts Receivable Turnover. The accounts receivable turnover can be calculated by dividing net sales by the average accounts receivable, which can be calculated by adding the beginning accounts receivable and ending accounts receivable and dividing it by 2.

To calculate the average payment period, we use the formula: Average Payment Period = 365 / Accounts Payable Turnover. The accounts payable turnover can be calculated by dividing the cost of goods sold by the average accounts payable, which can be calculated by adding the beginning accounts payable and ending accounts payable and dividing it by 2.

Once we have the average collection period and the average payment period, we can add them together to get the cash cycle.