Question

The operating cycle describes how a product: Select one: A. Generates a profit. B. Is priced. C. Moves through the current asset accounts. D. Moves through the production process. E. Is sold

Answer 1

Answer:

The correct answer is C. Moves through the current asset accounts.

Explanation:

The operating cycle is the process that an industrial company goes through, on average, from buying raw materials until it charges sales after production. In the case of a purely commercial organization, it ranges from the purchase of the merchandise to the collection of what the sales generate.

In detail, the operating cycle is given by the days when the company has the raw material. This is added to the days of the production process and the additional time it takes to sell or place the result in the market. This entire process involves investment or gross primary capital, accounts receivable and inventories.

The longer it is, the more investment the company will have in accounts receivable, in storage and, therefore, the cycle will be less profitable. If this happens, more bank loans or some additional financing would be needed for the process to be successful.