Q 1)

The operating cycle depends on the nature of the company. It is

the time it takes the company to use cash to acquire goods and
services, to sell those goods and services to customers, and to
collect cash from the sales.

Q 2) The cash basis fails to match accomplishments with efforts. In

particular, the cash basis fails to match revenues and expenses
properly. Inventory may be bought and paid for in one period,
sold in the second with the collection from customers in a third
period. Accrual accounting matches revenue and cost of goods
sold in the second period, although the cash outlay was in the
first and the collection was in the third.

Q3 ) Expenses are reductions in stockholders' equity; thus they may

be accurately described as negative stockholders' equity
accounts.