Suppose that LilyMac Photography has annual sales of $236,000, cost of goods sol

Question

Suppose that LilyMac Photography has annual sales of $236,000, cost of goods sold of $171,000, average inventories of $5,100, average accounts receivable of $26,200, and an average accounts payable balance of $7,600.

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

Suppose that LilyMac Photography has annual sales of $236,000, cost of goods sold of $171,000, average inventories of $5,100, average accounts receivable of $26,200, and an average accounts payable balance of $7,600.

Explanation / Answer

Operating cycle = days of receivables outstanding + days of inventory on hand

  = 365 * avg receivables/net credit sales + 365 * avg inventory/COGS

= 365*26200/236000 + 365*5100/171000 = 51.407 days

Cash cycle = operating cycle - 365*avg payables/COGS = 51.407 - 365*7600/171000 = 35.18 days

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