Suppose that Ken-Z Art Gallery has annual sales of $872,000, cost of goods sold

Question

Suppose that Ken-Z Art Gallery has annual sales of $872,000, cost of goods sold of $562,000, average inventories of $148,000, average accounts receivable of $117,000, and an average accounts payable balance of $80,000.

Assuming that all of Ken-Z’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Suppose that Ken-Z Art Gallery has annual sales of $872,000, cost of goods sold of $562,000, average inventories of $148,000, average accounts receivable of $117,000, and an average accounts payable balance of $80,000.

Explanation / Answer

Cash cycle = days inventory outstanding+days sales outstanding-days payable outstanding

days inventory outstanding = average inventory/cost of goods sold = 148,000/562,000 *365 days = 96.12099 days

days sales outstanding = average accounts receivable/net credit sales = 117,000/872,000*365 = 48.97362 days

days payable outstanding = average accounts payable/cost of goods sold = 80,000/562,000*365 = 51.95729 days

Cash cycle = days inventory outstanding+days sales outstanding-days payable outstanding

= 96.12099+48.97362-51.95729

= 93.18 days

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