Question

Consider the following financial statement information for the Amaryliss Corporation: Item Beginning Ending Inventory $10,382 $11,180 Accounts receivable 5,651 6,181 Accounts payable 5,952 6,293 Net sales $139,303 Cost of goods sold 87,113 Assume all sales are on credit. Calculate the operating and cash cycles

Answer 1

Answer:

60.67 days and 35.02 days

Explanation:

The computation of the operating and cash cycles is shown below:

The operating cycle = Days inventory outstanding + days sale outstanding

where,

Day inventory outstanding = (Beginning inventory + ending inventory) ÷ 2 ÷ cost of goods sold × number of days in a year

= ($10,382 + $11,180) ÷ $87,113 × 365 days

= ($10,782 ÷ $87,113) × 365 days

= 45.17 days

Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) ÷ 2 ÷ Net sales × number of days in a year

= ($5,651 + $6,181) ÷ 2 ÷ $139,303 × 365 days

= ($5,916 ÷ $139,303) × 365 days

= 15.50 days

Now put these days to the above formula  

So, the days would equal to

= 45.17 days + 15.50 days

= 60.67 days

Now The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding  

where,  

Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) ÷ 2 ÷ cost of goods sold × number of days in a year

= ($5,952 + $6,293) ÷ $87,113 × 365 days

= ($6122.50 ÷ $87,113) × 365 days

= 25.65 days

Now put these days to the above formula  

So, the days would equal to

= 45.17 days + 15.50 days - 25.65 days

= 35.02 days