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DEF had the following current assets and liabilities for 2016, with sales of $1,500,000 and cost...

Question:

DEF had the following current assets and liabilities for 2016, with sales of {eq}\$1,500,000 {/eq} and cost of goods sold were {eq}60\% {/eq} of sales. Given the following data calculate DEF's Operating cycle and cash conversion cycle.

ASSETS LIABILITIES & OWNER'S EQUITY
Cash $75,000
Accounts Payable $350,000
Accounts Receivable $375,000
Loan $125,000
Inventory $400,000
Accruals $250,000
Total Current Assets $850,000
Owner's Equity $125,000
Total Current Liab. & Owner's Equity $850,000

Operating cycle:

Operating cycle is the summation of the days inventory outstanding and the days sales outstanding. It is the time required by a company to manufacture its goods and to sell them to the customers and to collect the accounts receivable.

Answer and Explanation: 1

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{eq}\begin{align*} {\rm\text{Operating cycle}}\, &= \,{\rm\text{Days inventory outstanding}}\, + \,{\rm\text{Days sales outstanding}}\\ &=...

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Operating Cycle in Accounting: Definition & Formula

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Chapter 22 / Lesson 42
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An operating cycle consists of lead time, production time, sales time, delivery time, and cash-collection time. Learn the definitions of the parts of the operating cycle, how long the operation cycles are for different industries, and the formula used for calculating the operating cycle in accounting.


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