Jerome Industries has inventory days of 48, accounts receivable days of 21, and accounts payable...

Question:

Jerome Industries has inventory days of 48, accounts receivable days of 21, and accounts payable days of 30. What is its cash conversion cycle?

A.) 39 days

B.) 57 days

C.) 69 days

D.) 72 days

Cash Conversion Cycle:

Cash conversion cycle traces the time period for which cash is blocked in the business activities in the form of payables, inventory, receivables, etc. The cash conversion cycle begins from the credit purchases of inventory which results in accounts payable, then it involves payment of expenses on business operations and finally the sales that evolve into receivables and then cash collection.

Answer and Explanation: 1

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Correct answer: Option A) 39 days

Explanation:

Jerome Industries informed that:

  • Inventory days = 48 days
  • Average collection period = 21 days
  • Accoun...

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Operating Cycle & Cash Cycle: Definition & Calculations

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Chapter 17 / Lesson 2
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The operating cycle and cash conversion cycle are both tools to evaluate the timeline of when a business will become profitable. Explore the calculations of each, and identify their importance to a business.


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