Question

Prior Year Current Year Accounts payable, end of year Accounts receivable, net, end of year $10,628 6,683 23,965 8,984 187,000 96,000 17,150 8,295 Inventory, end of year Net sales 142,000 121,000 Cost of goods sold (1) Use the information above to compute the number of days in the cash conversion cycle for each year. (2) Did the company manage cash more effectively in the current year? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the information above to compute the number of days in the cash conversion cycle for each year. (Use 365 days in a year. Round calculations to the nearest whole day.) Current year Prior year days days Cash conversion cycle

Answer 1

	Current year			Current year
	Calculation	Solution		Calculation	Solution
Days in inventory [ ( Inventory / Cost of goods sold ) * Days in a year ]	(8984/96000)*365	34	Days	(8295/121000)*365	25	Days
Days sales outstanding [ ( Accounts receivables / Net sales ) * Days in year ]	(23965/187000)*365	47	Days	(17150/142000)*365	44	Days
Days payables outstanding [ ( Accounts payable / Cost of goods sold ) * Days in a year ]	(6683/96000)*365	25	Days	(10628/121000)*365	32	Days

Required 1 :
	Current year		Prior Year
Cash conversion cycle [ Days in inventory + Days sales outstanding - Days payables outstanding ]	56 [ 34+47-25 ]	Days	37 [ 25+44-32 ]	Days

Required 2:

Answer : No

Explanation : As the cash conversion cycle in current year is more than the prior year, the company did not managed its cash more effectively in the current year.