The operating cycle will decrease with all of the following changes except ____________.
A) The cost of goods sold increases
B) The level of credit sales increases
C) The level of inventory decreases
D) All of these will decrease the operating cycle

Question

Quizplus · Accepted Answer

The operating cycle is the time it takes a company to convert inventory into cash. It includes the time it takes for a company to purchase inventory, sell the inventory, and receive payment from customers. Therefore, if the cost of goods sold increases or the level of credit sales increases, the operating cycle will increase because the company will need more time to convert inventory into cash. However, if the level of inventory decreases, the operating cycle will decrease because the company will be able to sell its inventory faster. Therefore, D is the only option that is incorrect.

The Operating Cycle Will Decrease with All of the Following