WHAT IS THE OPERATING CYCLE
WHAT IS THE OPERATING CYCLE
DEFINITION OF OPERATING CYCLE:-
"It is the time between the acquisition of an asset for processing and its realisation into Cash and Cash Equivalents. Where operating cycle cannot be identified, it is assumed to be of 12 months."
For example, in a manufacturing company operating cycle for the product will be the time taken to purchase raw material, processing it to make finished product, selling it and converting it into Cash and Cash Equivalents.
In case Operating Cycle cannot be identified, it is assumed that the business has an Operating Cycle of 12 months.
Operating Cycle is determined for each class of business separately. Thus, if a company has more than one business (say construction and trading), Operating Cycle will be determined for construction and trading business separately.
I hope, you all guys Understand it better so, I have a question for u please give me the answer in comment:
Ques. A company is in the business of trading in timber and also making furniture. Can it have different Operating Cycles for the two businesses?
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