Question

Which of the following best reflects the definition of normal operating cycle under PAS 1?

a. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into finished goods, and sell the finished goods.
b. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into finished goods, sell the finished goods on account, and collect the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on account and settle the account.
d. For a manufacturing entity, this is the usual time it takes for the entity to sell finished goods on account and collect the receivables.

Answer 1

The normal operating cycle under PAS 1 involves acquiring raw materials, processing them into finished goods, and selling those finished goods option a.

Step-by-step explanation:

The normal operating cycle under PAS 1 refers to the usual time it takes for a manufacturing entity to complete a series of activities from acquiring raw materials to selling finished goods and collecting receivables.

Option (a) states that the normal operating cycle involves acquiring raw materials, processing them into finished goods, and selling those finished goods. This is the most accurate definition of the normal operating cycle as it covers all the necessary steps in the manufacturing process.

The definition of a normal operating cycle under PAS 1 is best reflected in option b, which states that for a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into finished goods, sell the finished goods on account, and collect the receivables. This concept embodies the complete process from the initial purchase of raw materials to the ultimate conversion into cash or cash equivalents, when the products are sold and the receivables are collected.