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26 February, 10:17

Consider the following financial statement information for the Sourstone Corporation: Item Beginning Ending Inventory $7,203 $9,041 Accounts receivable 3,069 3,995 Accounts payable 3,617 4,599 Net sales $95,982 Cost of goods sold 59,814 Assume all sales are on credit. Calculate the operating and cash cycles. (Do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)

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  1. 26 February, 12:36
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    The operating and cash cycles are 62.99 days and 37.92 days respectively

    Explanation:

    The computation of the operating and the cash cycle is shown below:

    The operating cycle = Days inventory outstanding + days sale outstanding

    where,

    Day inventory outstanding = (Beginning inventory + ending inventory) : 2 : cost of goods sold * number of days in a year

    = ($7,203 + $9,041) : 2 : $59,814 * 365 days

    = ($8,122: $59,814) * 365 days

    = 49.56 days

    Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) : 2 : Net sales * number of days in a year

    = ($3,069 + $3,995) : 2 : $95,982 * 365 days

    = ($3,532 : $95,982) * 365 days

    = 13.43 days

    Now put these days to the above formula

    So, the days would equal to

    = 49.56 days + 13.43 days

    = 62.99 days

    Now The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding

    where,

    Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) : 2 : cost of goods sold * number of days in a year

    = ($3,617 + $4,599) : 2 : $59,814 * 365 days

    = ($4,108 : $59,814) * 365 days

    = 25.07 days

    Now put these days to the above formula

    So, the days would equal to

    = 49.56 days + 13.43 days

    - 25.07 days

    = 37.92 days
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