Operating cycle is measured as:
A) Inventory Turns minus Average Collection Period
B) Inventory Turns plus Average Collection Period
C) Days' Sales in Inventory minus Average Collection Period
D) Days' Sales in Inventory plus Average Collection Period

Question

Quizplus · Accepted Answer

The operating cycle is the length of time it takes for a company to turn its inventory into cash. It is measured as Days' Sales in Inventory plus Average Collection Period. This formula takes into account how long it takes a company to sell its inventory (Days' Sales in Inventory) and how long it takes to collect payment from customers (Average Collection Period). Adding these two together gives the total length of time it takes for a company to complete a cycle of buying inventory, selling it, and collecting payment.

Operating Cycle Is Measured As