Question

Which one of the following commences on the day inventory is purchased and ends on the day the payment for the sale of that inventory is collected? Assume all sales and purchases are on credit.
a. Cash cycle
b. Inventory period
c. Accounts payable period
d. Operating cycle
e. Accounts receivable period

Answer 1

The inventory period commences on the day inventory is purchased and ends on the day the payment for the sale of that inventory is collected

The time span between purchasing goods and selling them is referred to as the inventory period. In the majority of firms, the inventory period starts when the inventory is bought and ends when the money is collected from the sale of that inventory.

This period is also known as the inventory turnover period, and it is an important measure of a firm's efficiency and profitability. A shorter inventory period generally indicates that a firm is able to sell its inventory more quickly, which can lead to increased profits. Whereas, a longer inventory period may indicate that the firm is having difficulty selling its inventory, which can lead to decreased profits or even losses.

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