Consider the following financial statement information for the sourstone corporation: item beginning ending inventory $7,203 $9,041 accounts receivable 3,069 3,995 accounts payable 3,617 4,599 net sales $95,982 cost of goods sold 59,814 assume all sales are on credit. calculate the operating and cash cycles. (do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)

The operating and cash cycles are 62.99 days and 37.92 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) ÷ 2 ÷ cost of goods sold × number of days in a year

= ($7,203 + $9,041) ÷ 2 ÷ $59,814 × 365 days

= ($8,122÷ $59,814) × 365 days

= 49.56  days

Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) ÷ 2 ÷ Net sales × number of days in a year

= ($3,069 + $3,995) ÷ 2 ÷ $95,982 × 365 days

= ($3,532 ÷ $95,982) × 365 days

= 13.43 days

Now put these days to the above formula  

So, the days would equal to

= 49.56 days + 13.43 days

= 62.99 days

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

where,  

Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) ÷ 2 ÷ cost of goods sold × number of days in a year

= ($3,617 + $4,599) ÷ 2 ÷ $59,814 × 365 days

= ($4,108 ÷ $59,814) × 365 days

= 25.07 days

Now put these days to the above formula  

So, the days would equal to

= 49.56 days + 13.43 days

- 25.07 days

= 37.92 days

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