Based on Lesson 1, how would you relate the operations of a business with the operating cycle of

a business from an accounting perspective?

Starting off with the definition of these two terms, the operating cycle of a business is
defined as the average period of time required for a business to have an initial expenditure of
cash to produce goods, sell the goods and receive cash from customers in return for the goods
provided. It is also called the cash-conversion cycle which is the process for inventory
purchases to turn into sales revenues.On the other hand, accountancy or accounting is the
process as to one’s business records its transactions and prepare financial statements that show
the current state and progress of the company in the different areas.

Viewing this from an accounting perspective, the former plays an essential role in
managing a business for the reason that it enables the company to keep track of the financial
performance and state of its firm. Correlating the two of the given terms, it is obvious that the
operating cycle of a business and the company's accounting cycle are independent of each
other with respect to the period of the cycles, but they are also closely related in terms of the
course of information. However, they are not exactly the same as some may perceive. The
accounting cycle of a company is based on the time schedules for financial reporting and
cannot be altered nor repeated however the operating cycle may repeat itself multiple times as
long as it is within the same accounting cycle. The data on business affairs acquired through
each operating cycle ensures the appropriate accounting recording method in relation to the
accounting cycle. If there is no cooperation and communication between those who handle the
accounting records and regular business operations, the accuracy of the company’s financial
state is put unto risk.

Digging deeper, the word liquidity can also be incorporated in the discussion since it
entails the ability of a firm to turn their near-term obligations into assets as the come due. Jim
Wilkinson states that the concept of operating cycle indicates the company’s accurate liquidity
status. The way records and transactions in the series are overseen and compared to similar
industries, defines the image or quality of service/product a company offers that may be of
reference of future investors. In addition, the profit depends on the type of business operating
cycle. It is interconnected and inclusive in the process of accounting and vice verse. Overall,
both of these is used to help the company succeed and avoid business failures.

References:

Wilkinson, J. (2013, August11). Operating Cycle Defintion. Retrieved on August 26, 2020
from https://strategiccfo.com/operating-cycle-definition-2/#:~:text=The%20operating%20cycle
%20concept%20indicates%20a%20company%27s%20true%20liquidity.&text=This%20is
%20because%20a%20company,purchases%20into%20cash%20through%20sales.
Way, J. (nd) . Accounting Cycle vs. Operating Cycle. Retrieved on August 26, 2020 from
https://smallbusiness.chron.com/accounting-cycle-vs-operating-cycle-10111.html

Walter, L. (2004, October 9). Business Liquidity And The Operating Cycle. Retrieved on
August 25, 2020 from https://www.principlesofaccounting.com/chapter-4/business-liquidity/

Bragg, S. (2009, May 4). The operating cycle of a business. Retrieved on August 26, 2020
from https://www.accountingtools.com/articles/what-is-the-operating-cycle-of-a-
business.html#:~:text=The%20operating%20cycle%20is%20the,in%20exchange%20for
%20the%20goods.

What is the operating cycle? (nd). Retrieved on August 26, 2020 from
https://www.accountingcoach.com/blog/what-is-the-operating-cycle

Naik, S. (2017, June 20) What is the operating cycle of a manufacturing unit? Retrieved on
August 25, 2020 from https://bankingschool.co.in/financial-analysis/what-is-operating-cycle-
of-a-manufacturing-unit/