BA LJ 5
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Learning Journal Unit 5
Week 5
Basic Accounting 1102
. Complete each of the calculations listed below (A – C).
A. (Use Chart 1) You are an investor looking to contribute financially to either the ABC Group or the 123 Company. Based on the information provided:
Compute the accounts receivable turnover ratio.
Compute the number of days’ sales in receivables ratio for both ABC Group and 123 Company (round all answers to two decimal places).
Interpret the outcomes, stating which company you would invest in and why.
B. (Use Chart 2) Compute the inventory turnover ratio.
Interpret the outcomes C. (Use Chart 2) Compute the number of days’ sales in inventory ratio.
Interpret the outcomes 2. Interpret the outcomes for each of the calculations performed using chart 1 and chart 2 (A – C).
3. Did you encounter issues completing any Unit 5 assignments? Please explain.
4. You are halfway through the course. What are your thoughts about the course and the material that has been covered at this point?
The account receivable turnover ratio for 123 groups is 3.73
The account receivable turnover ratio for ABC group is 3.24
The number of days in receivables ratio for 123 groups is 97.85
The number of days in receivables ratio for the ABC group is 112.65
Investors are looking for higher accounts receivable turnover, and using the above chart, the 123 group seems to be doing well in collecting its debt, and their effort to create a good client base is showing. Which is why investing in them is the better decision.
B.
Using the formula for the COGS/AISP, to get the average inventory, we will use the (beginning inventory plus ending inventory) formula divided by 2
That is, Average inventory are ($29,000+10,826)/2 = $19,913 for year 1 and ($10,826+5,980)/2 = $8,403 for year 2.
The price of goods sold for the year 1 is ($28,174)
Price of goods sold for year 2 ($10,826)
The year 1 inventory turnover ratio is (1.41)
The year 2 inventory turnover ratio is (1.29)
A higher ratio interprets that the company is doing well with sales, and a lower ratio can also interpret that the group is not doing so well with sales.
C.
Inventory ratio for the number of days in sales for year 1 is (257.98)
The inventory ratio for the number of days in sales for year 2 is (283.31)
The group is not selling the goods in inventory as fast as they should. The number of days in sales for inventory ratio was higher in year 2 than in year 1.
123 group has a higher account receivable turnover ratio because the group has a client base that is willing to pay its debt, which makes it easy for the group to invest.
Chart 2 describes a group struggling with sales in year 2, which mean investing in that group will hold your money for a long time.
3.
I think that the issue I had with the discussion forum in unit 5 was trying to understand why giving trade credit to a customer is a good thing. While I understand the need to give trade credit. I just have seen companies or businesses close down because the customers can not pay those debts on time.
The question will be, is there any alternative to trade credit, especially for countries that do not offer a credit card?
4.
I think the material is great. The videos in the course material are also a great way to learn.
References:
Franklin, M. Graybeal, P. & Cooper, D. (2020).
Principles of accounting, volume 1: Financial accounting. Open Stax Rice University. https://openstax.org/details/books/principles-financial-
accounting
.
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