Asked by Kayla Lippoldt on Apr 26, 2024
Verified
During the past year, Omni, Inc. had total credit sales of $1,000,000. Omni's cost of sales averaged 70% of credit sales, it had average accounts receivable of $124,500, and it always paid its payables according to the required net 30 schedule. Inventory averaged $184,000 for the year. Using this information, compute the length of the five different cycles/periods discussed in the text that trace inventory from purchase to collection of the account.
Accounts Receivable
Money owed to a company by its customers for goods or services that have been delivered or used, but not yet paid for.
Payables
Amounts owed by a company to suppliers or creditors for goods and services received.
Inventory
The raw materials, work-in-progress products, and completely finished goods that are considered to be the portion of a business's assets that is ready or will be ready for sale.
- Describe the operating cycle, cash cycle, and how they impact business operations.
Verified Answer
ML
Matthew LorentzApr 28, 2024
Final Answer :
The periods/cycles are:
Inventory cycle = 365/(1,000,000. 7/184,000) = 95.9 days
Accounts receivable period = 365/(1,000,000/124,500) = 45.4 days
Operating cycle = 95.9 + 45.4 = 141.3 days
Accounts payable period = 30 days
Cash cycle = 141.3 - 30 = 111.3 days
Inventory cycle = 365/(1,000,000. 7/184,000) = 95.9 days
Accounts receivable period = 365/(1,000,000/124,500) = 45.4 days
Operating cycle = 95.9 + 45.4 = 141.3 days
Accounts payable period = 30 days
Cash cycle = 141.3 - 30 = 111.3 days
Learning Objectives
- Describe the operating cycle, cash cycle, and how they impact business operations.