Sparkling Cleaners operated six outlets in the city. At each outlet, customers could drop off clothes to be either dry cleaned or laundered. Clothes were normally ready for pickup within one to three days, and customers paid with cash, debit, or credit when they picked them up. Sparkling Cleaners had a central facility at which the clothing was cleaned. The company also had large contracts with hospitals and hotels. Under these contracts, laundry was picked up daily, cleaned, and returned the following day, and the customer was sent a weekly invoice for the laundry cleaned that week. Payment was due before the next invoice was sent out. Whenever a payment had not yet been received by the time that the next invoice needed to be sent, the unpaid amount was added to the new invoice.
Required:
a. Describe Sparkling Cleaners' cash-to-cash cycle. To do this, you will need to determine the types of expenditures that the company will likely incur in the operation of its business, as well as outline when the company receives cash in return for its services.
b. What revenue recognition options are open to the company with respect to its two types of customers? Which one would you recommend for each type of customer and why?