Suppose that Freddie's Fries has annual sales of $650,000; cost of goods sold of $525,000; average inventories of $24,000; average accounts receivable of $40,000, and an average accounts payable balance of $35,000. Assuming that all of Freddie's sales are on credit, what will be the firm's cash cycle? (Round your answer to 2 decimal places.

14.81 days

Explanation:

The computation of the cash cycle is shown below:

The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding

where,

Day inventory outstanding = (Beginning inventory + ending inventory) : cost of goods sold * number of days in a year

= ($24,000 : $525,000) * 365 days

= 16.68 days

Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) : Net sales * number of days in a year

= ($40,000 : $650,000) * 365 days

= 22.46 days

And, Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) : cost of goods sold * number of days in a year

= ($35,000 : $525,000) * 365 days

= 24.33 days

Now put these days to the above formula

So, the days would equal to

= 16.68 days + 22.46 days - 24.33 days

= 14.81 days