The net operating cycle represents _______.
A)the gross operating cycle reduced by accounts payable turnover days, the amount of time that an entity's customers will let it use trade credit before requiring payment for goods and services
B)the gross operating cycle reduced by accounts receivable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services
C)the gross operating cycle reduced by accounts payable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services
D)the gross financing cycle reduced by accounts payable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services

Question

Quizplus · Accepted Answer

The net operating cycle represents the total amount of time it takes for a company to turn its inventory, receivables, and payables into cash. It is calculated by subtracting the number of days it takes to turn payables into cash (accounts payable turnover days) from the gross operating cycle, which is the number of days it takes to turn inventory into receivables and then into cash. Therefore, choice C is the best answer as it accurately describes the net operating cycle as the gross operating cycle reduced by accounts payable turnover days.

The Net Operating Cycle Represents _______