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Accounting Question

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Step 1

Accounts receivable turnover

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In simple, it indicates the number of times the average amount of net accounts receivables has been collected during a particular period.

Average collection period:

Average collection period indicates the number of days taken by a business to collect its outstanding amount of accounts receivable on an average.

Step 2

(1)

Calculate the accounts receivable turnover for Year 2 and Year 1.

Calculate accounts receivable turnover ratio for Year 2. Calculate accounts receivable turnover ratio for Year 1. Accounts receivable) Accountsreceivable) Sales Sales turnover for Year 2 Averageaccount receivable turnover for Year 1 Averageaccount receivable Sales Sales Accounts receivable, ending + Accounts receivable, ending + Accounts receivable, beginning Accounts receivable, beginning $116,199 $112,640 $1,972+ $1,817 $1,817 + $1,822 2 = 61.33 times = 61.91 times
Step 3

(2)

Calculate the day’s sales in receivables at the end of Year 2 and Year 1.

Calculate the day's sales in receivables at the end of Year 2. Number of days in a year Day's sales in receivables at the end of Year 2 Accounts receivable turnover 365 days 61.33 times = 6 days (Roundedoff) Calculate the day's sales in receivables at the end of Year 1. Number of days in a year Day's sales in receivables at the end of Year 1 Accounts receivable turnover 365 days 61.91 times = 5.9 days (Rounded off)
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