could anyone help me with the working cycle problem of cash management? Thanks!

Luciana

the task is shown in the assessment practice on MY AAT.

current cash operating cycle 45 days,
then changes are: average stock holding period increases by 7 days and number of days taken to pay trade payable (creditors) decreases by 13 days.

my thoughts
Originally, Stock holding+Debtors days-Creditors days=45
then adjustments--(Stock holding+7)+Debtors days-(Creditors days-13)=45+7+13=65 days, which does agree with the answer supplied by AAT.

Could anyone explain how to tackle the problem?

Many thanks

SandyHood

The working capital cycle is made up of:

Inventory (stock) holding period
+ Receivables (debtors) period
- Payables (creditors) period

If this is currently 45 days

Then apply the changes
Inventory (stock) holding period 7 extra days
+ Receivables (debtors) period no change
- Payables (creditors) period 13 fewer days - i.e add 13 on

This means you have a total of 60 days after the changes


Do you see that holding the stock longer increases the cycle
and the quicker you pay your suppliers the longer the cycle

Luciana

Thank you for your reply. According to your calculation, the adjusted cycle should be 65, isn't it? If so, I can understand it. But, The answer given by AAT was 39days, by adding 7 extra stock holding days and deducting 13 creditors days. I just don't get it.

Luciana

Just passed the cash management! Thank you,sandy. The working cycle question was easy today.

anisurrahman

Congratulations Luciana

- Ronnie

Luciana

anisurrahman wrote: »

Congratulations Luciana

- Ronnie

Thanks Ronnie. Next test will be the costs, before that I have my driving test booked. But my driving instructor may not let me have a go, worrying! How are your tests going?

anisurrahman

Passed Indirect Tax - Costing & Revenues and AP 1 after x-mas. Good Luck with your driving test
Ronnie