The Operating Cycle

question 21

Multiple Choice

The operating cycle

• A) begins when the firm receives the raw materials it purchased that would be used to produce the goods that the firm manufactures.
• B) begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.
• C) To measure operating cycle we need another measure called the days' payables outstanding.
• D) ends not with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by the firm to pay for its purchases.

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Definitions:

Outstanding Checks

Checks that have been written and recorded in a ledger but have not yet been cashed or cleared by the bank.

Outstanding Deposit

Funds that have been deposited but not yet credited to the depositor's account.

Check Register

A record maintained by the account holder of checks written, deposits made, and current balance, used for managing a checking account.

Writing Checks

The process of completing and signing a check as a means of making a payment from a bank account.