Module: General Practice
Q170: Consider the following assertion and reason regarding the "Operating Cycle" concept.
Assertion (A): A longer operating cycle typically indicates a higher requirement for working capital.
Reason (R): The operating cycle measures the time gap between the acquisition of raw materials and the realization of cash from sales.
Reason (R): The operating cycle measures the time gap between the acquisition of raw materials and the realization of cash from sales.
✅ Correct Answer: A
Reason (R) defines the cycle, which tracks the flow from Cash to Raw Material, to Work-in-Progress, to Finished Goods, to Receivables, and back to Cash.
Assertion (A) applies this definition: if funds are tied up in this cycle for a longer time (e.g., 90 days versus 30 days), the business needs more money to sustain operations during that waiting period.
Therefore, the duration defined by R directly causes the higher capital need described in A.
Assertion (A) applies this definition: if funds are tied up in this cycle for a longer time (e.g., 90 days versus 30 days), the business needs more money to sustain operations during that waiting period.
Therefore, the duration defined by R directly causes the higher capital need described in A.