The document defines the operating cycle as the continuous process from purchasing raw materials to receiving cash from debtors. It explains that the operating cycle is calculated by adding the inventory period (time inventory is stored) and the accounts receivable period (time taken to collect cash from sales). Understanding the operating cycle is essential for effective financial management in businesses.

1. DETERMINATION OF OPERATING
CYCLE
Compiled by: LIKHITHRAJ
MECHANICAL ENGINEERING
SMVITM

2. Operating cycle- A continuous process starting from payment of cash for purchasing
raw material ,production , stocking , selling until obtaining money from debtors.
 The time taken to convert raw material into cash is known as operating cycle

3. HOW TO DETERMINE OPERATING CYCLE
Operating cycle = Inventory period + Accounts receivable
period
Inventory period – It is the amount of time inventory sits in
storage
Account receivable period – It is the time it takes to collect
cash from the sale of the inventory.