Question

Consider the following financial statement information for the Newk Corporation: Item Inventory Accounts receivable Accounts payable Credit sales Cost of goods sold Beginning $ 10,200 5,200 7,400 Ending $11,200 5,500 7,800 $82,000 62,000 Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) days Operating cycle Cash cycle days

Answer 1

Ans :

11. Operating cycle = Inventory period + account receivables period.

= 62.9919 days + 23.8140 days (Note 1 and 2)

= 86.8059 days

Cash cycle = Operating cycle – Payable period .

= 86.8059 days - 44.7419 days

= 42.0639 days

Note 1: Inventory turnover = COGS / Average inventory

= $ 62,000 / ($ 10,200 + $ 11,200) /2

= $ 62,000 / $ 10,700

= 5.79439

Inventory period = 365/inventory turnover ratio

= 365 / 5.79439

= 62.9919 days

Note 2: Receivable turnover = Credit sales/ average receivable

= $ 82,000 /(5200+5500)/2

= 82,000/5350

= 15.32710

Receivable period = 365 days / Receivable turnover

= 365 / 15.32710

= 23.8140 days

Note3: Payable turnover = COGS/average payable

= $ 62,000 / (7400+7800)/2

= 62,000/ 7600

= 8.15789

Payable period = 365 days / payable turnover

= 365 / 8.15789

= 44.7419 days