Suppose that Professional Photography has annual sales of $900,000, cost of goods sold of $450,000, average inventories of $5,000, average accounts receivable of $40,000, and an average accounts payable balance of $20,000. Assuming that all of Professional's sales are on credit, what will be the firm's cash cycle?
A) 4.06 days
B) 12.17 days
C) 18.25 days
D) 36.50 days

Question

Quizplus · Accepted Answer

The cash cycle is the time it takes for a company to convert its inventory into cash. It is calculated as follows:Cash cycle = (Days in inventory + Days in receivables) - Days in payablesDays in inventory = (Average inventory / Cost of goods sold) * 365 days= ($5,000 / $450,000) * 365 days= 4.06 daysDays in receivables = (Average accounts receivable / Annual sales) * 365 days= ($40,000 / $900,000) * 365 days= 16.67 daysDays in payables = (Average accounts payable / Annual sales) * 365 days= ($20,000 / $900,000) * 365 days= 8.11 daysTherefore, the cash cycle is:Cash cycle = (4.06 days + 16.67 days) - 8.11 days= 12.62 days

Suppose That Professional Photography Has Annual Sales of $900,000, Cost