Question

The 2013 and 2014 balence sheet for Northwest plumbing showed cash of $6,500 and $8,000 respectively. Accounts receivable of $15,000 and $18,000 respectively, inventory of $12,500 and $9,500, and accounts payable of $5,000 and $8,000. Its 2014 net income statement showed showed net sales of $116,000. Cost of goods sold of $58,000 and net income of $31,000. The cash conversion cycle for 2014 was

Answer 1

Answer:

The cash conversion cycle for 2014 was 105 days.

Explanation:

To calculate the Cash Conversion Cycle you need first to calculate three indicators that are the components of the Cash Conversion Cycle.

DIO - Days of Inventory Outstanding

DSO - Days Sales Outstanding

DPO - Days Payables Outstanding

The CCC is the sum of DIO + DSO - DPO

Please see details below:

CCC - Cash Conversion Cycle = 105  days

DIO - Days of Inventory Outstanding = 99 days

Average Inventory  $15.750  

Cost Of Goods  $58.000  

DSO - Days Sales Outstanding = 57 days  

Accounts Receivable $18.000  

Sales $116.000  

DPO - Days Payables Outstanding = 50 days  

Accounts Payables  $8.000  

Cost Of Goods  $58.000