Chapter 15, Problem 1CP

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

Chapter
Section

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

# John Byers owns and operates Byers Building Supplies. The following information was taken from his financial statements:All sales are made on account.REQUIREDBased on the above information, on average, approximately how many days pass from the time Byers purchases inventory until he receives cash from customers?

To determine

Identify the average days to convert inventory to cash.

Explanation

Operating cycle:

The sequence of activities which includes the investment of cash to purchase goods, sell goods, generate revenues, receive cash, and repay the expenses, are referred to as operating cycle.

Calculate average days to convert inventory to cash.

AverageÂ daysÂ toÂ convertÂ inventoryÂ toÂ cash)Â =â€‰(AverageÂ daysÂ toÂ sellÂ inventoryÂ +Â AverageÂ daysÂ toÂ collectÂ receivables)=â€‰14.6â€‰daysÂ +Â 30.4â€‰days=â€‰45â€‰days

Working notes:

(1) Calculate inventory turnover ratio.

InventoryÂ turnoverÂ =â€‰CostÂ ofÂ goodsÂ soldAverageÂ inventory=â€‰$5,000($100+$300)2=â€‰$5,000\$200=â€‰25â€‰times

(2)Calculate average days to sell inventory

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