Textbook Problem

OBJ ECTWE 6

Exercise 4-53 Operating Cycle

A list of businesses is presented below:

Business Opening-Cycle Description

1. Tree nursery a. Very short-customers typically pay cash, and inventory is of um held

2. Fast food restaurant less than 1 day.

3. Appliance store I}. A few months-merchandise is typically on hand for several weeks,

4. Electric utility and some customers may use credit.

5. Clothing store c. More than 1 year-merchandise may be in inventory for several months. and most customers will pay for purchases after I or 2 years.

6. Several years-a number of years are required to prepare merchandise for sale, Customers probably pay cash for most items,

e. A few month-customers pay monthly. The current assets used to provide customer services are consumed within a few months.

Required:

1. Match each business with a description of the operating cycle for that business.

2. CONCEPTUAL CONNECTION How does a longer operating cycle (such as Description c or 6) change a company’s financing needs relative to a shorter operating cycle (such as Description a)?