Question

For 2018, Tree Top Farms had sales of $438,000, cost of goods sold of $286,000, ending inventory of $154,000, ending accounts receivable of $46,000, and ending accounts payable of $38,000. For 2019, sales were $413,000, cost of goods sold was $281,000, ending inventory was $149,000, ending accounts receivables were $48,000, and ending accounts payable were $36,000. What was the cash cycle for 2019 based on a 365-day year

Answer 1

190.27 days

Step-by-step explanation:

Average accounts receivable = (Ending accounts receivable 2018 + Ending accounts receivable 2019) / 2

Average accounts receivable = ($46,000 + $48,000)/2

Average accounts receivable = $47,000

Average accounts payable = (Ending accounts payable 2018 + Ending accounts payable 2019) / 2

Average accounts payable = ($38,000 + $36,000)/2

Average accounts payable = $37,000

Average inventory = (Ending inventory 2018 + Ending inventory 2019) / 2

Average inventory = ($154,000 + $149,000)/2

Average inventory = $151,500

Days sales outstanding = (Average accounts receivable*365 days)/Sales

Days sales outstanding = ($47,000*365 days)/$413,000

Days sales outstanding = $17,155,000/$413,000

Days sales outstanding = 41.54 days

Days payable outstanding = (Average accounts payable*365 days)/Cost of goods sold

Days payable outstanding = ($37,000*365 days)/$281,000

Days payable outstanding = $13,505,000/$281,000

Days payable outstanding = 48.06 days

Days inventory outstanding = (Average inventory*365 days)/Cost of goods sold

Days inventory outstanding = ($151,500*365 days)/$281,000

Days inventory outstanding = $55,297,500/$281,000

Days inventory outstanding = 196.79 days

Cash cycle = Days sales outstanding + Days inventory outstanding - Days payable outstanding

Cash cycle = 41.54 days + 196.79 days - 48.06 days

Cash cycle = 190.27 days

Hence, the cash cycle for 2019 based on a 365-day year is 190.27 days