If creditors allow 30 days from the date of purchase before requiring payment,it takes,on average 40 days to sell inventory,and debtors take,on average,45 days to pay their accounts,the length of the cash cycle is:
A)55 days
B)85 days
C)115 days
D)45 days

Question

Quizplus · Accepted Answer

The cash cycle is the time it takes for a company to convert its inventory into cash. It is calculated as follows:Cash cycle = Days to sell inventory + Days to collect accounts receivable - Days to pay accounts payableIn this case, the days to sell inventory is 40 days, the days to collect accounts receivable is 45 days, and the days to pay accounts payable is 30 days. Therefore, the cash cycle is 40 days + 45 days - 30 days = 55 days.

If Creditors Allow 30 Days from the Date of Purchase