Question

The cash cycle is the difference between the:

Select one:

a. operating cycle and accounts payable period

b. accounts payable and accounts receivable period

c. operating cycle and accounts receivable period

d. operating cycle and activity cycle

Answer 1

The answer is Option A. (Operating cycle and accounts payable period)

Cash cycle is basically the difference between the period when we pay out the cash for the inventory and the time when we receive the cash for the sales made. Operating cycle is the difference between the period when we buy the inventory on credit and receive cash from sales made.

Thus, the time difference between buying the inventory and actually paying for it ie. Accounts Payable Period is eliminated from the operating cycle to get the desired cash cycle.