Question

Consider the following financial statement information for the Sourstone Corporation:

Item Beginning Ending
Inventory $9,682 $10,480
Accounts receivable $4,951 $ 5,481
Accounts payable $5,252 $ 5,593
Net sales $138,603
Cost of goods sold 86,413


Assume all sales are on credit. Calculate the operating and cash cycles. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

A) Operating Cycle is ____ days
B) Cash Cycle is ____ days

Answer 1

A. 56.32 days

B. 40.38 days

Step-by-step explanation:

The Operating cycle is the Inventory period + AR period

Inventory period= 365/(Cost of goods sold/Average inventory)

Average inventory= (Beginning Inventory + Ending Inventory)/2

Accounts Receivable period= 365/(Credit Sales/Average Accounts Receivable )

Average Accounts Receivable= (Beginning Accounts Receivable + Ending Inventory Accounts Receivable)/2

Calculated Inventory period= 42.58 days

Calculated Accounts Receivable period= 13.74 days

The Cash cycle is also called the Net Operating cycle which is the Inventory period + Accounts Receivable period- Accounts Payable period

Accounts Payable period= 365/(Cost of goods sold/Average Accounts Payable)

Average Accounts Payable = (Beginning Accounts Payables + Ending Inventory Accounts Payable)/2

Calculated Accounts Payable period= 15.94 days