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. (Do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)

The operating and cash cycles are 62.99 days and 37.92 days respectively

Explanation:

The computation of the operating and the cash cycle is shown below:

The operating cycle = Days inventory outstanding + days sale outstanding

where,

Day inventory outstanding = (Beginning inventory + ending inventory) : 2 : cost of goods sold * number of days in a year

= ($7,203 + $9,041) : 2 : $59,814 * 365 days

= ($8,122: $59,814) * 365 days

= 49.56 days

Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) : 2 : Net sales * number of days in a year

= ($3,069 + $3,995) : 2 : $95,982 * 365 days

= ($3,532 : $95,982) * 365 days

= 13.43 days

Now put these days to the above formula

So, the days would equal to

= 49.56 days + 13.43 days

= 62.99 days

Now The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding

where,

Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) : 2 : cost of goods sold * number of days in a year

= ($3,617 + $4,599) : 2 : $59,814 * 365 days

= ($4,108 : $59,814) * 365 days

= 25.07 days

Now put these days to the above formula

So, the days would equal to

= 49.56 days + 13.43 days

- 25.07 days

= 37.92 days