Which of the following is the best description of the operating cycle?
A)The length of time that it takes to convert raw materials into inventory.
B)The length of time that it takes to convert raw materials into accounts receivable.
C)The length of time to acquire raw materials and receive payment for them when sold.
D)None of these.

Question

Quizplus · Accepted Answer

The operating cycle measures the length of time it takes for a company to acquire raw materials, convert them into inventory, sell that inventory on credit (which creates accounts receivable), and receive payment for those accounts receivable. Option A only accounts for the conversion of raw materials into inventory, while option B only accounts for the conversion of raw materials into accounts receivable, so neither of these fully capture the operating cycle. Option C includes all stages of the operating cycle, making it the best description. Option D is incorrect since there is a correct answer.

Which of the Following Is the Best Description of the Operating