Operating Cycle

Question 1

Operating Cycle

Answer 1

Determined the time it takes cash investment to flow from cash through inventory, sales, receivables and back to cash

Question 2

Days payable is defined as

Answer 2

Average number of days it took the company to pay its trade suppliers

Question 3

Days payable is calculated as:

Answer 3

Accounts Payable
———————— x days (use 360)
Cost of goods sold

Question 4

Formula for operating cycle:

Answer 4

Days Receivable 
\+ 
Days Inventory
- 
Days Payable
- 
Days Accrual

Question 5

Inventory includes:

Answer 5

Inputs of production
+ finished goods
—————————
= inventory

Question 6

Days Accrual is defined as:

Answer 6

The average number of days it took the company to pay its accrued expenses (officer salary, wages and etc)