Suppose that Ken-Z Art Gallery has annual sales of $896,000, cost of goods sold

Question

Suppose that Ken-Z Art Gallery has annual sales of $896,000, cost of goods sold of $586,000, average inventories of $172,000, average accounts receivable of $105,000, and an average accounts payable balance of $63,000.

Assuming that all of Ken-Z’s sales are on credit, what will be the firm’s cash cycle?

Suppose that Ken-Z Art Gallery has annual sales of $896,000, cost of goods sold of $586,000, average inventories of $172,000, average accounts receivable of $105,000, and an average accounts payable balance of $63,000.

Explanation / Answer

Ar period=(AR/Sales)*365 days

=(105000/896000)*365

Inventory period=(Inventory/COGS)*365 days

=(172000/586000)*365 days

AP period=(AP/COGS)*365 days

=(63000/586000)*365 days

Hence cash cycle=AR period+Inventory period-AP period

=(105000/896000)*365 +(172000/586000)*365 days-(63000/586000)*365 days

=110.67 days(Approx)

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