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Sir,
Am struggling to understand this one.
Specimen question 6(mcq)
The following has been calculated from fowler financial statements for the year ended 30/9/2014
Fowler cash cycle at 30/9/2014 is 70 days
Its inventory turnover is six times
year-end trade payable are $ 230,000
Purchase on credit for the year were $ 2m
cost of sales for year was $1.8m
What is Fowler trade recievable collection period as at 30/9/2014. the trading days is 365 days and all calculations should be to the nearest day.Thanks sir in advance
You are told that the cash cycle is 70 days and (hopefully) you remember that cash cycle = inventory days + receivable days – payables days
Inventory days = 365 / 6 = 61 days
Payables days = 230 / 2,000 x 365 = 42 days
So receivables days = 70 – 61 + 42 = 51 days
Ok?
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