Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Useful Information

Financial Accounting

1. Introduction to Accounting

Useful Information

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Multiple Choice

The cash conversion cycle is computed as:

Days Sales Outstanding + Days Payables Outstanding - Days Inventory Outstanding

Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding

Days Inventory Outstanding + Days Payables Outstanding - Days Sales Outstanding

Days Payables Outstanding + Days Inventory Outstanding + Days Sales Outstanding

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Verified step by step guidance

Understand the concept of the cash conversion cycle (CCC): It measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. The formula involves three components: Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), and Days Payables Outstanding (DPO).

Review the formula for the cash conversion cycle: CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payables Outstanding (DPO). This formula reflects the time taken to sell inventory and collect receivables, minus the time taken to pay suppliers.

Analyze the components: Days Inventory Outstanding (DIO) measures how long inventory is held before being sold. Days Sales Outstanding (DSO) measures the average time taken to collect payment after a sale. Days Payables Outstanding (DPO) measures the average time taken to pay suppliers after receiving inventory.

Compare the given options: The correct formula is DIO + DSO - DPO, as it aligns with the definition of the cash conversion cycle. Carefully eliminate options that do not follow this structure.

Verify the logic: Ensure that the formula makes sense conceptually. Adding DIO and DSO accounts for the time taken to sell inventory and collect receivables, while subtracting DPO accounts for the time taken to pay suppliers, which reduces the overall cycle duration.