Question

A firm has an operating cycle of 120 days, an average collection period of 40 days, and an average payment period of 30 days. The firm's inventory period is ________ days

Answer 1

Answer: 110 days

Explanation:

The operating cash cycle is the difference between the operating cycle (accounts receivable and inventory) and the payment cycle (accounts payable)

Days of operating cycle = (Days Accounts Receivable + Inventory days) - Days of Accounts Payable

Inventory days = Days Accounts receivable - Days accounts payable - Days of operating cycle

Inventory Days = 40 - 30 - 120

Inventory Days = 110 days