1. You have the following information:
Accounts receivable $160,000
Total credit sales $2,500,000
Assume a 360 day year and compute the receivables collection period.
2.Inventory conversion period 15 days
Closing inventory $28,000
Compute C O G S (assuming a 360 day year).
3.Inventory conversion period 68.2 days
Receivables collection period 35.8 days
Payables deferral period 24.6 days
Compute the cash conversion cycle:
4.Inventory conversion period 55.8 days
Days sales outstanding 23.9 days
Days payables outstanding 32.5 days
The cash conversion cycle is:?
1) Receivables collection period = (Accounts receivables / Total credit sales) x 360 days = ($160,000 / $2,500,000) x 360 days = 23.04 days
2) Inventory collection period = (Closing inventory / COGS) x 360 days
or, 15 days = ($28000 / COGS) x 360 days
or, COGS = $672,000
3) Cash Coversion cycle = Inventory conversion period + Receivables collection period - payables deferral period = 68.2 days + 35.8 days - 24.6 days = 79.4 days
4) Cash conversion cycle = Inventory conversion period + Days sales outstanding - Days payable outstanding = 55.8 days + 23.9 days - 32.5 days = 47.2 days
Receivables collection period is also called Days sales outstanding. Payables deferral period is also called Days payables outstanding.
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