The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash or cash equivalents.
When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be twelve months.”
A company’s normal operating cycle may be longer than twelve months e.g. companies manufacturing wines, etc. However, where the normal operating cycle cannot be identified, it is assumed to have a duration of twelve months.
Where a company is engaged in running multiple businesses, the operating cycle could be different for each line of business. Such a company will have to classify all the assets and liabilities of the respective businesses into current and non-current, depending upon the operating cycles for the respective businesses.