If a firm has a cash cycle of 30 days and an operating cycle of 92 days, what is its average payment period?
A)92 days
B)58 days
C)34 days
D)30 days

Question

Quizplus · Accepted Answer

The cash cycle measures the time it takes for a company to convert its resources into cash. It is the time period between when the company pays its suppliers for inventory and when it receives cash from its customers for the sale of that inventory. The operating cycle measures the time it takes for a company to use its resources to generate revenue. It is the time period between when the company purchases inventory and when it receives cash from its customers for the sale of that inventory.

The average payment period is the time it takes for the company to pay its suppliers. It can be calculated by subtracting the cash cycle from the operating cycle:

Average payment period = Operating cycle - Cash cycle 
= 92 days - 30 days 
= 62 days

Therefore, the answer is B) 58 days.

If a Firm Has a Cash Cycle of 30 Days