The following calculations were made from Clay Co.’s 2003 books:


Number of days’ sales in inventory 61 Days

Number of days’ sales in trade accounts receivable 33 Days


Which one of the following was the number of days in Clay’s 2003 operating cycle?

Correct answer: (D)

The operating cycle measures the average length of time to invest cash in inventory, convert the inventory to accounts receivable, and collect the receivables.

Thus, for Clay, its operating cycle is the sum of its number of days’ sales in inventory plus the number of days’ sales in trade accounts receivable, or 61 days + 33 days = 94 days.
Basically, this measures the number of days to go from cash through inventory and accounts receivable, back to cash.