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SUBMITTED BY:
GROUP #11
 
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The time that elapses between the purchase of raw material and the
collection of the cash for the sales is referred to as the operating
cycle.

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The length between the payment for raw material purchases and
the collection of cash for sales is referred to as the cash cycle.
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OPERATING AND CASH CYCLE:

PURCHASE OF FINISHED GOODS CASH RECEIVABLE PERIOD

RAW MATERIAL

INVENTORY PERIOD ACCOUNTS RECEIVABLE PERIOD

ACCOUNTS PAYABLE
PERIOD
CASH PAID
FOR MATERIALS

OPERATING CYCLE

CASH CYCLE
  

  (AVERAGE INVETORY) / (ANNUAL COGS/365)

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   (AVERAGE DEBTORS) /(ANNUAL SALES/365)

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   (AVERAGE CREDITORS) /(ANNUAL COGS/365)

 
 › ›  INVENTORY PERIOD+A/C RECEIVABLES PERIOD

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› ›OPERATING CYCLE-A/C PAYABLE PERIOD
CASE 1:FINANCIAL INFORMATION FOR ZENITH Ltd.

PROFIT BALANCE BEGINNING END OF

&LOSS A/C SHEET OF 20X0 20X0
DATA
SALES 500 INVENTORY 60 64

COST OF 360 A/C 80 88

GOODS RECEIVABL
SOLD E
A/C 40 46
PAYABLE
INVENTORY HOLDING PERIOD  (AVERAGE INVENTORY)/ (COGS/365)
= 62.86 DAYS

A/C RECEIVABLE PERIOD  (AVERAGE A/C RECEIVABLE)/(SALES/365)

 61.32 DAYS

A/C PAYABLE PERIOD (AVERAGE A/C PAYABLE)/(COGS/365)

43.59 DAYS

OPERATING CYCLE INVENTORY PERIOB+A/C RECEIVABLE

124.18

CASH CYCLE OPERATING CYCLE-A/C PAYABLE PERIOD

80.58 DAYS
CASE 2:FINANCIAL INFORMATION FOR APEX Ltd.

PROFIT BALANCE BEGINNING END OF

&LOSS A/C SHEET OF 20X0 20X0
DATA
SALES 1000 INVENTORY 110 120

COST OF 750 A/C 140 150

GOODS RECEIVABL
SOLD E
A/C 60 66
PAYABLE
INVENTORY HOLDING PERIOD  (AVERAGE INVENTORY)/ (COGS/365)
= 59.96 DAYS

A/C RECEIVABLE PERIOD  (AVERAGE A/C RECEIVABLE)/(SALES/365)

 52.93 DAYS

A/C PAYABLE PERIOD (AVERAGE A/C PAYABLE)/(COGS/365)

30.66 DAYS

OPERATING CYCLE INVENTORY PERIOB+A/C RECEIVABLE

108.89 DAYS

CASH CYCLE OPERATING CYCLE-A/C PAYABLE PERIOD

78.23 DAYS
CASE 3: (in Rs.)
Sales(at two months¶ credit) 3600,000
Materials consumed(two months credit) 900,000
Wages paid(monthly in arrear) 720,000
Manufacturing expenses outstanding
(cash expenses paid one month in arrear) 80,000
Total administrative exp. Paid as incurred 240,000
Sales promotion exp., paid quarterly in
Advance. 120,000
25% gross profit
Depreciation as a part of cogs.
One month¶s stock of raw material and finished goods
Cash balance of rs. 100,000
20% as a safety margin
Calculate working capital requirement on the basis of cash cost.
CURRENT ASSETS: (in Rs.)

1) STOCK OF RAW MATERIALS 75,000

(Material cost*(time span/12)
2)STOCK OF FINISHED GOODS 215,000
(Cash manufacturing cost*(time span/12)
3)DEBTORS AT COST 490,000
(Total cash cost*(time span/12)
4)ADVANCE PAYMENT OF SALES
PROMOTION EXPESE 30,000
(Paid quarterly in advance)
5)CASH BALANCE 100,000
TOTAL CURRENT ASSET (A) 910,000
CURRENT LIABILITY: (in Rs.)

1) CREDITORS 150,000
(Material cost*time span/12)
2)WAGES OUTSTANDING 60,000
(One month in arrear)
3)MANUFACTURING EXPENSE
OUTSTANDING 80,000
(One month in arrears)

TOTAL CURRENT LIABILITY (B) 290,000

WORKING CAPITAL(A-B) 620,000
ADD: 20% Safety margin 124,000
WORKING CAPITAL REQUIREMENT 744,000