BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

Solutions

Chapter
Section
BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
3 views

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)?

To determine

Concept Introduction:

Operating cycle:

Operating cycle is the chain of business activities performed in an organization. An organization can be manufacturing, servicing of merchandising type. For a merchandiser, the main business activities are the purchase, payment to the supplier, sales, and receipts from the customer. Hence the operating cycle of a merchandiser is limited as compared with the operating cycle of a manufacturer.

The Operating cycle mainly includes following activities:

•Purchases from the supplier (either cash or on account)

•Payment to suppliers

•Inventory

•Sales (either cash or on account)

•Collection from customer

The formula to calculate the operating cycle is as follows:

Net Operating Cycle = Inventory Period + Accounts Receivable Period − Accounts Payable Period.

Requirement-1:

To Indicate:

The correct match for each business with its operating cycle description.

Explanation

The correct match for each business with its operating cycle description is explained as follows:

    BusinessOperating Cycle Description
    1d.Tree Nursery requires several years to grow trees and get them ready for sale
    2a.Fast Food Restaurant has a very short operating cycle as they keep the inventory on daily basis...
To determine

Concept Introduction:

Operating cycle:

Operating cycle is the chain of business activities performed in an organization. An organization can be manufacturing, servicing of merchandising type. For a merchandiser, the main business activities are the purchase, payment to the supplier, sales, and receipts from the customer. Hence the operating cycle of a merchandiser is limited as compared with the operating cycle of a manufacturer.

The Operating cycle mainly includes following activities:

•Purchases from the supplier (either cash or on account)

•Payment to suppliers

•Inventory

•Sales (either cash or on account)

•Collection from customer

The formula to calculate the operating cycle is as follows:

Net Operating Cycle = Inventory Period + Accounts Receivable Period − Accounts Payable Period.

Requirement-2:

To Indicate:

The effect of longer operating cycle on financial needs of the company.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Describe the three approaches to performance feedback interviews.

Foundations of Business (MindTap Course List)

Briefly describe the differences between a credit, charge, debit and smart card.

Principles of Information Systems (MindTap Course List)

What are the main components of a database system?

Database Systems: Design, Implementation, & Management

What is the difference between a digital signature and a digital certificate?

Principles of Information Security (MindTap Course List)

What is a transfer-type measuring tool?

Precision Machining Technology (MindTap Course List)

Calculate the second moment of area for a 26 piece of lumber about the xx and yy axes, as shown. Visit a hardwa...

Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)

Why is green computing important?

Enhanced Discovering Computers 2017 (Shelly Cashman Series) (MindTap Course List)