ACCA FM · Chapter 3 · Question 1 of 10
Extracts from a company's financial statements show: revenue (all on credit) $7,300k, cost of sales $5,110k, inventory $840k, trade receivables $1,200k and trade payables $650k. Payables days are calculated using cost of sales. What is the length of the cash operating cycle, using a 365-day year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 73.6 days
Explanation
Inventory days = 840 / 5,110 x 365 = 60.0; receivables days = 1,200 / 7,300 x 365 = 60.0; payables days = 650 / 5,110 x 365 = 46.4. Cash operating cycle = 60.0 + 60.0 - 46.4 = 73.6 days (rounded to 1 decimal place). Adding payables days, or calculating them on revenue, are common errors.
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