Instructions a) Calculate the accounts receivable turnover and average collection period for both companies. My answer for (a) Surf Tide Net Accounts Receivable, beginning (Accounts receivable balance (gross), beginning-Allowance for doubtful accounts, beginning) (2,873.7-78.4) =2,795.3 (1,743-119) =1,624 Net Accounts Receivable, ending (Accounts receivable balance (gross), ending-Allowance for doubtful accounts, ending) (2994.7-110.8) =2,883.9 (1,553-124) =1,429 Average Net Accounts Receivable (Net Accounts Receivable, beginning+Net Accounts Receivable, ending) / 2 (2,795.3+2,883.9)/2 =2,839.6 (1,624+1,429)/2 =1,526.5 Accounts Receivable Turnover (Sales/Average Net Accounts Receivable) (19,176.1/2,839.6) =6.75 times (10,381/1,526.5) =6.8 times Average Collection Period (365/Accounts Receivable Turnover) (365/6.75) =54.07 days (365/6.8) =53.68 days b) Comment on the difference in their collection experiences.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Suppose the amounts presented here are basic financial information (in millions) from the 2020 annual reports of Surf and Tide.
| Surf | Tide | |
| Sales revenue | $19,176.1 | $10,381 |
| Allowance for doubtful accounts, beginning | 78.4 | 119 |
| Allowance for doubtful accounts, ending | 110.8 | 124 |
| Accounts receivable balance (gross), beginning | 2,873.7 | 1,743 |
| Accounts receivable balance (gross), ending | 2,994.7 | 1,553 |
Instructions
a) Calculate the accounts receivable turnover and average collection period for both companies.
My answer for (a)
| Surf | Tide | |
|
Net Accounts Receivable, beginning (Accounts receivable balance (gross), beginning-Allowance for doubtful accounts, beginning) |
(2,873.7-78.4) =2,795.3 |
(1,743-119) =1,624 |
|
Net Accounts Receivable, ending (Accounts receivable balance (gross), ending-Allowance for doubtful accounts, ending) |
(2994.7-110.8) =2,883.9 |
(1,553-124) =1,429 |
|
Average Net Accounts Receivable (Net Accounts Receivable, beginning+Net Accounts Receivable, ending) / 2 |
(2,795.3+2,883.9)/2 =2,839.6 |
(1,624+1,429)/2 =1,526.5 |
|
Accounts Receivable Turnover (Sales/Average Net Accounts Receivable) |
(19,176.1/2,839.6) =6.75 times |
(10,381/1,526.5) =6.8 times |
|
Average Collection Period (365/Accounts Receivable Turnover) |
(365/6.75) =54.07 days |
(365/6.8) =53.68 days |
b) Comment on the difference in their collection experiences.
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