Which of the following statements regarding operating and cash cycles is true? A

Question

Which of the following statements regarding operating and cash cycles is true?

A. Operating cycle is the length of time between the acquisition of inventory and the collection of cash from receivables. B. The length of time between the acquisition of inventory and its sale is called the days sales outstanding. C. Accounts payable period is the length of time between the sale of inventory and the collection of cash from receivables. D. The length of time between the payment for inventory and the sale of inventory is called the cash cycle.

Explanation / Answer

Ans A:

Reason: A business buys invetory and sells the same after necessary value addition. Many times the buy and sell transaction is not in cash basis but on credit basis. So the cash outflow and inflow may be diffrerent from the date of physical receipt of inventory from the vendor and physical delivery of goods to the customer. Operating cycle is duration between the date of cash outflow (date of payment to vendor) and cash inflow( date of receipt of payment from customer)

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