Operating Cycle in Merchandising and Manufacturing Companies

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10 Questions

What is the classification of restricted cash that is expected to be used within one year?

Current asset

How are short-term investments that a company intends to sell within a year reported?

As current assets

What is the term used for receivables that result from loans or advances made by the company to individuals or other entities?

Nontrade receivables

How are accounts receivable typically reported on the balance sheet?

$2,749 million

What is the primary purpose of inventory for a retail or wholesale company?

To produce goods for sale

What does the operating cycle of a company refer to?

The duration from the sale of finished goods until the collection of cash from the customer.

How does the operating cycle differ for a manufacturing company compared to a merchandising company?

Manufacturing companies deal with raw materials conversion to finished products, while merchandising companies don't.

When does a company classify assets as current assets if the operating cycle extends beyond one year?

At the end of the second year from the balance sheet date.

How does a shipbuilding company with a long operating cycle classify its assets in the balance sheet?

Both current and non-current assets are classified based on when they will be realized into cash.

Why is the one-year convention used to classify assets and liabilities in most businesses?

To standardize financial reporting and facilitate comparisons across different companies.

Learn about the concept of the operating cycle in merchandising and manufacturing companies, which involves the period from purchasing inventory to collecting cash from customers. Understand the differences in the initial purchase of inventory between merchandising and manufacturing companies.

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