The length of the operating cycle equals the days' sales uncollected plus the
A) receivable turnover.
B) days' payable.
C) days' inventory on hand.
D) payables turnover.

Question

Quizplus · Accepted Answer

The operating cycle is the time it takes for a company to purchase inventory, sell it, and collect payment from customers. It is calculated by adding the days' inventory on hand to the days' sales uncollected. Therefore, the best choice is C. The other options, receivable turnover and payables turnover, reflect how quickly a company is able to collect receivables from customers and pay off its own payables, respectively. The days' payable is not relevant to the operating cycle calculation.

The Length of the Operating Cycle Equals the Days' Sales