days Sales Outstanding is over 90 days and the Payment Interval is significantly less than 30 days. Before you discuss these results with the controller, what reasons do you expect to be given to explain the clients operating cycle
days Sales Outstanding is over 90 days and the Payment Interval is significantly less than 30 days. Before you discuss these results with the controller, what reasons do you expect to be given to explain the clients operating cycle
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
You are asked to examine your client's operating cycle ratios as part of your quarterly review. The days Sales Outstanding is over 90 days and the Payment Interval is significantly less than 30 days. Before you discuss these results with the controller, what reasons do you expect to be given to explain the clients operating cycle
Expert Solution
Step 1
Operating cycle of a company should be less as it ensures liquidity and cash flow into the company.
Meaning of operating cycle:
Operating cycle is period from between inventory buying to sales realisation into cash.
In other words, it is sales to cash time period.
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