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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What is the operating cycle?

To determine

Introduction:

Operating cycle is the elapsed time between the purchase of goods for resale and the collection of cash from customers preferably a larger amount of cash than was invested in the goods sold.

Explanation

Consider the operating cycle for H.H Gregg, a large appliance retailer that provides long-term financing for customers. Appliances remain in inventory for an average of 3 months before being sold. Most are sold on credit and it takes an average of 12 months to collect the full amount of a sale. Thus, Gregg’s operating cycle is of 15 months representing the average purchase to collection interval i.e. ( 3 months to sell plus 12 months to collect)...

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