The cash cycle can be deﬁned as the operating cycle:
A) Minus the accounts receivable period.
B) Plus the accounts receivable period.
C) Minus the accounts payable period.
D) Plus the accounts payable period.
E) Plus the inventory period.

Question

Quizplus · Accepted Answer

The cash cycle is calculated by subtracting the average payment period (accounts payable period) from the operating cycle. This is because the operating cycle starts with the purchase of inventory, which is paid for by accounts payable, and ends with the collection of accounts receivable. Therefore, by subtracting the average payment period, we can calculate the time it takes a company to convert its inventory into cash.

The Cash Cycle Can Be Deﬁned as the Operating Cycle