Answer:
A/ R Days ; 32 days
Inventory Days : 106 days
A/P Days: 49 days
Cash to cash Days: 89 days
Step-by-step explanation:
Computation of A/R days
Accounts Receivables days are calculated by first determining the daily credit sales by dividing the annual credit sales amount with 365.
The receivable balance is then divided by the average daily credit sales to get the receivable days
Annual Sales $ 460,000/ 365 days = Average Daily Sales = $ 1260.27
Receivable Days = Receivable Balance $ 40,000/ $ 1260.27 = 32 days (rounded)
Computation of Inventory days
Inventory days are calculated by first determining the daily cost of goods sold by dividing the annual cost of goods sols with 365.
The inventory balance is then divided by the average daily cost of goods sold to get the inventory days
Cost of goods sold $ 300,000 / 365 days = $ 821.92
Inventory Days = Inventory balance / Average daily cost of goods sold
$ 87,000/ $ 821.92 = 106 days
Computation of A/P days
Accounts Payables days are calculated by first determining the daily credit purchases by dividing the annual purchases amount with 365.
The payable balance is then divided by the average daily purchases to get the payable days.
Since the purchase data is not provided we assume that the cost of goods sold is the credit purchases
Cost of goods sold $ 300,000 / 365 days = $ 821.92
Payable Days = Payables balance / Average daily cost of goods sold
$ 40,000/ $ 821.92 = 49 days
Cash to Cash Days
The cash to cash days is the period of converting the receivables and inventory balances to cash. It is calculated by the following formula
A/R Days + Inventory Days - A/P days
32 + 106 -49 = 89 days