Khalid, Inc. manufactures furniture for sale to department stores. On average, 90 days elapse between Khalid’s payment for raw materials and the sale of furniture produced from those raw materials. On average, the firm’s customers pay for purchased goods in 45 days. All of Khalid’s sales are on credit.
Required:
(a) What is the length of Khalid’s operating cycle?
(b) How does the length of a company’s operating cycle affect the classification of items in its balance sheet?