Which of the following will decrease the operating cycle?
A) The cash cycle increases.
B) The days' sales in inventory decreases by three days but the average collection period increases by two days.
C) The average payment period increases.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

The operating cycle is the sum of the days' sales in inventory (DSI) and the average collection period (ACP). A decrease in DSI, even with an increase in ACP, will decrease the total length of the operating cycle if the decrease in DSI is greater than the increase in ACP. Choices A and C affect the cash cycle, not directly the operating cycle.

Which of the Following Will Decrease the Operating Cycle