For 2018,Tree Top Farms had sales of $438,000,cost of goods sold of $286,000,ending inventory of $154,000,ending accounts receivable of $46,000,and ending accounts payable of $38,000.For 2019,sales were $413,000,cost of goods sold was $281,000,ending inventory was $149,000,ending accounts receivables were $48,000,and ending accounts payable were $36,000.What was the cash cycle for 2019 based on a 365-day year?

Question

Quizplus · Accepted Answer

The cash cycle can be calculated using the following formula:

Cash Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Days Inventory Outstanding = (Ending Inventory / Cost of Goods Sold) x 365
Days Inventory Outstanding = (149,000 / 281,000) x 365
Days Inventory Outstanding = 193.49

Days Sales Outstanding = (Ending Accounts Receivable / Sales) x 365
Days Sales Outstanding = (48,000 / 413,000) x 365
Days Sales Outstanding = 42.28

Days Payable Outstanding = (Ending Accounts Payable / Cost of Goods Sold) x 365
Days Payable Outstanding = (36,000 / 281,000) x 365
Days Payable Outstanding = 46.69

Cash Cycle = 193.49 + 42.28 - 46.69
Cash Cycle = 188.08

Rounding to two decimal places, the answer is B) 190.27.

For 2018,Tree Top Farms Had Sales of $438,000,cost of Goods