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Consider the following financial statement information for the Sourstone Corporation: Item Beginning Ending Inventory $7,203 $9,041 Accounts receivable 3,069 3,995 Accounts payable 3,617 4,599 Net sales $95,982 Cost of goods sold 59,814 Assume all sales are on credit
Consider the following financial statement information for the Sourstone Corporation:
Item Beginning Ending
Inventory $7,203 $9,041
Accounts receivable 3,069 3,995
Accounts payable 3,617 4,599
Net sales $95,982
Cost of goods sold 59,814
Assume all sales are on credit. Calculate the operating and cash cycles. How do you interpret your answer?
Expert Solution
Average Collection Period = Average Accounts Receivables / Credit Sales per day
= [($3,069 + $3,995)/2] + [$95,982 / 365 Days]
= $3,532 / $262.96 per day
= 13.43 Days
Days sales in Inventory = Average Inventory / Cost of goods sold per day
= [($7,203 + $9,041)/2] / [$59,814 / 365 Days]
= $8,122 / $163.87 per day
= 49.56 Days
Accounts Payable Deferral Period = Average Accounts Payable / Cost of goods sold per day
= [($3,617 + $4,599)/2] / [$59,814 / 365 Days]
= $4,108 / $163.87 per day
= 25.07 Days
Operating Cycle = Average Collection Period + Days sales in Inventory
= 13.43 Days + 49.56 Days
= 62.99 Days
Cash Cycle = Operating Cycle - Accounts Payable Deferral Period
= 62.99 Days - 25.07 Days
= 37.92 Days
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