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REPORTING AND
ANALYSIS
Lecture: 15
Lecturer: HAROON IQBAL
OPERATING CYCLE
Efficiency
of operating cycle/process: It is
determined by activity ratios, keeping in view the
conversion process, which is as follows:Operating Cycle=Inventory sale days (average)
+Receivable Collection days (average).
The shorter the operating cycle, the higher the quality
of current assets and the greater the efficiency of
management.
Managing Accounts Receivable: The business
offers cash discount to encourage early payment or
factors Receivables i.e. selling Receivables to a
financial institution (factor).
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Cash Cycle
The length of time from the actual outlay of cash for
whichever is longer.
The five categories of assets usually found in current
assets, listed in their order of liquidity, include cash,
marketable securities, receivables, inventories, and
prepayments.
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Marketable securities
The business entity has varying cash needs throughout
Receivables
An entity usually has a number of claims to future inflows of
collected, so the entity incurs costs for the use of these funds.
Second collection may not be made.
Inventories
Inventor is often the most significant asset in determining the short-
complicated
problem
when
analyzing
inventories. The basic approach to the
valuation of inventory uses cost. The cost
figure is often difficult to determine, especially
when dealing with manufacturing inventory.
because of the concept of conservatism, the
cost figure may not be acceptable if it can not
be recovered. Therefore if the market figure is
below cost the inventory is reduced to market.
Inventory is stated at lower of cost or market
on the financial statements
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