What is the difference between the operating cycle and the cash cycle as defined in the chapter?

The operating cycle is the total time from acquiring inventory to collecting cash from sales, while the cash cycle measures the time between cash disbursement for inventory and cash collection from sales. The operating cycle includes the inventory period and the accounts receivable period, whereas the cash cycle accounts for the accounts payable period as well.

The operating cycle consists of two main components: the inventory period, which is the time taken to acquire and sell inventory, and the accounts receivable period, which is the time taken to collect cash after a sale. In contrast, the cash cycle focuses on the time between when cash is spent to purchase inventory and when cash is received from customers, factoring in the accounts payable period as the time before payment is made for the inventory. Thus, the cash cycle is the duration that financing is needed, which is the operating cycle minus the accounts payable period.