Multiple Choice
Which of the following best describes how prepaid expenses are reported on the balance sheet after adjusting journal entries have been made at the end of the accounting period?
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3. Accrual Accounting Concepts
Introduction to Adjusting Journal Entries and Prepaid Expenses
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
The _ conversion cycle measures the average time it takes to convert cash outflows into cash inflows.
A
financing
B
inventory
C
cash
D
operating
Verified step by step guidance1
Understand the concept of the conversion cycle: The conversion cycle measures the average time it takes for a company to convert its cash outflows (used for purchasing inventory and other operating expenses) into cash inflows (generated from sales and collections).
Identify the components of the conversion cycle: It typically includes the inventory conversion period, accounts receivable collection period, and accounts payable deferral period.
Recognize the importance of cash in the conversion cycle: Cash is the central element because it represents the liquidity needed to sustain operations and meet obligations.
Clarify the relationship between cash and the operating cycle: The operating cycle focuses on the time taken to turn inventory into cash through sales, while the cash conversion cycle adjusts for the time taken to pay suppliers.
Conclude that the correct term to describe the conversion cycle is 'cash,' as it directly relates to the inflow and outflow of funds during the operating process.
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