Consider the following financial statement information for the Sourstone Corporation: Item Beginning Ending Inventory $11,482 $12,280 Accounts receivable 6,751 7,281 Accounts payable 7,052 7,393 Net sales $140,403 Cost of goods sold 88,213 Assume all sales are on credit. Calculate the operating and cash cycles.

The operating and cash cycles is 134.80 days and 75.04 days respectively.

Explanation:

The computation of the operating and the cash cycle is shown below:

The operating cycle = Days inventory outstanding + days sale outstanding

where,

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

= ($11,482 + $12,280) : $88,213 * 365 days

= ($23,762 : $88,213) * 365 days

= 98.32 days

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

= ($6,751 + $7,281) : $140,403 * 365 days

= ($14,032 : $140,403) * 365 days

= 36.48 days

Now put these days to the above formula

So, the days would equal to

= 98.32 days + 36.48 days

= 134.80 days

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

where,

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

= ($7,052 + $7,393) : $88,213 * 365 days

= ($14,445 : $88,213) * 365 days

= 59.76 days

Now put these days to the above formula

So, the days would equal to

= 98.32 days + 36.48 days - 59.76 days

= 75.04 days