The operating cycle of a company is the average time that is required to go from cash to?

Question

sales in producing revenues.

cash in producing revenues.

inventory in producing revenues.

Answer 1

The operating cycle is from the time you first purchase or manufacture a product A/P until you sell the product and get paid. Sales is not it because you can still have A/R outstanding that have not been collected for the sale. Inventory is a part of the cycle not the end. so the answer has to be Cash. The cycle is Cash to Cash.

Answer 2

The operating cycle is the number of days from cash to inventory to accounts receivable to cash.

The operating cycle reveals how long cash is tied up in receivables and inventory. A long operating cycle means that less cash is available to meet short term obligations.