The following figures are taken from the financial statements of Foods Ltd, a distributor of frozen foods, for the year ended 31 December 2021: £000 Sales revenue 820 Cost of sales 544 Opening inventories 142 Closing inventories 166 Purchases 568 Trade receivables 264 Trade payables 159 All purchases and sales are on credit. There has been no change in the level of trade receivables or payables over the period. Required: a) Calculate the length of the operating cash cycle for the business. b) Suggest how the business may seek to reduce this period. (Provide a maximum of 250 words and six valid reasons)
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
The following figures are taken from the financial statements of Foods Ltd, a distributor of frozen
foods, for the year ended 31 December 2021:
£000
Sales revenue 820
Cost of sales 544
Opening inventories 142
Closing inventories 166
Purchases 568
Trade receivables 264
Trade payables 159
All purchases and sales are on credit. There has been no change in the level of trade receivables or
payables over the period.
Required:
a) Calculate the length of the operating cash cycle for the business.
b) Suggest how the business may seek to reduce this period.
(Provide a maximum of 250 words and six valid reasons)
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