Asked by Khánh Tr??ng on May 22, 2024
Verified
Which of the following statements is true?
A) The inventory period of the operating cycle ends when the receivable it creates is actually paid for by the customer.
B) The length of the operating cycle is always greater than or equal to the length of the cash cycle.
C) The accounts receivable period is always greater than or equal to the length of the cash cycle.
D) The inventory period plus the accounts receivable period is equal in length to the operating cycle plus the cash cycle.
E) The accounts payable period ends when the inventory is sold.
Operating Cycle
The period between the acquisition of inventory and the collection of cash from receivables, indicating the efficiency of a company's operations.
Inventory Period
The duration of time goods remain in inventory before being sold.
Accounts Receivable Period
The accounts receivable period is the average time it takes for a business to receive payments owed by its customers for goods or services sold on credit.
- Become familiar with the factors that play a role in the cash cycle and operating cycle.
Verified Answer
FP
Felipe PalmaMay 24, 2024
Final Answer :
B
Explanation :
The length of the operating cycle, which includes both the inventory period and the accounts receivable period, is always greater than or equal to the length of the cash cycle because the cash cycle also accounts for the accounts payable period, effectively shortening the time between cash outlay for inventory and cash receipt from sales.
Learning Objectives
- Become familiar with the factors that play a role in the cash cycle and operating cycle.