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12 June, 01:08

For the purpose of classifying liabilities as current or noncurrent, the term operating cycle refers to

A. the time period between the date the sale is made and the date the related revenue is collected.

B. the time period between the purchase of merchandise and the conversion of this merchandise back to cash.

C. a period of one year.

D. the average time period between business recessions.

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Answers (1)
  1. 12 June, 01:22
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    Answer: Option B

    Explanation: In simple words, operating cycle refers to the time taken by an organisation from converting its initial purchase of inventory to the cash payment received from selling that inventory. In other words, it is the cycle from initial outlay of cash to final inflow of cash.

    Thus, from the above we can conclude that the correct option is B.
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