Question
Explain briefly the concept of operating cycle.
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Answer
The duration between buying the raw material and receiving cash from the customer is known as operating cycle or Cash Conversion Cycle. During the time required to convert raw material into end product, various expenses like wages, rent, salary, etc are to be paid. Once the end product is ready, it has to be sold and money received from customers. The operating cycle is the length of time between a firm's purchase of inventory and the receipt of cash from accounts receivables.
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