Chapter 16, Problem 4QP

Summary Introduction

To determine: The impact of following actions in the operating cycle and cash cycle.

Introduction:

Cash cycle:

The time between the cash disbursement and cash collection is termed as cash cycle.

The formula to calculate the cash cycle:

$\text{Cash cycle}=\text{Operating cycle}-\text{Accounts payable period}$

Operating cycle:

The phase, which takes time to complete the process from initial outlay of cash to produce, sell, and receive money from customers are termed as operating cycle.

The formula to calculate operating cycle:

$\text{Operating cycle}=\text{Inventory period}+\text{Accounts receivable period}$