Assuming an entity sells inventory only on credit terms,use the following information to calculate the length of the entity's activity cycle and cash cycle.
Days inventory is 60 days.
Days debtors is 35 days.
Days creditors is 30 days.
A) Activity cycle is 95 days; cash cycle is 65 days.
B) Activity cycle is 65 days; cash cycle is 95 days.
C) Activity cycle is 65 days; cash cycle is 30 days.
D) Activity cycle is 95 days; cash cycle is 30 days.

Question

Quizplus · Accepted Answer

The activity cycle is the sum of the days inventory and days debtors, which is 60 + 35 = 95 days. The cash cycle is the activity cycle minus the days creditors, which is 95 - 30 = 65 days. Therefore, the correct answer is A.

Assuming an Entity Sells Inventory Only on Credit Terms,use the Following