How Is a Company's Operating Cycle Determined

question 168

Multiple Choice

How is a company's operating cycle determined?

• A)Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.
• B)Adding the average number of days to sell inventory to the average number of days to collect receivables.
• C)Dividing cost of goods sold by average inventory.
• D)Dividing 365 days by the difference in the inventory turnover and receivable turnover.

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Definitions:

Business Entity Assumption

An accounting principle that treats a business as a separate legal entity from its owners, requiring separate accounting records.

Personal Financial Information

Data related to an individual's finances, including income, debt, investments, and credit history.

Sole Stockholder

An individual or entity that is the only owner of all the shares of a company.

External Users

Individuals or entities outside of a company who are interested in its financial information, including investors, creditors, and regulatory agencies.