Roman Sound Source, Inc., has operated in Kansas for 30 years. The company has always prided itself on providing individual attention to its customers. It carries a large inventory so it can offer a good selection and deliver purchases quickly. It accepts credit cards and checks but also provides 90 days credit to reliable customers who have purchased from the company in the past.

It maintains good relations with suppliers by paying invoices quickly.

During the past year, the company has been strapped for cash and has had to borrow from the bank to pay its bills. An analysis of its financial statements reveals that, on average, inventory is on hand for 70 days before being sold, and receivables are held for 90 days before being paid. Accounts payable are paid, on average, in 20 days. What are the operating cycle and the financing period? How long are Roman’s operating cycle and financing period? Describe three ways in which Roman can improve its cash flow management.

Periodic Versus Perpetual Inventory Systems