# Accounts receivable analysis Xavier Scores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (in millions): Xavier Lestrade Sales $8,500,000$4,585,000 Credit card receivables—beginning 820,000 600,000 Credit card receivables—ending 880,000 710,000 a. Determine the (1) accounts receivable turnover and (2) the number of days’ sales in receivables for both companies. Round to one decimal place. b. Compare the two companies with regard to their credit card policies.

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 17, Problem 17.10EX
Textbook Problem

## Accounts receivable analysisXavier Scores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (in millions):   Xavier Lestrade Sales $8,500,000$4,585,000 Credit card receivables—beginning 820,000 600,000 Credit card receivables—ending 880,000 710,000 a. Determine the (1) accounts receivable turnover and (2) the number of days’ sales in receivables for both companies. Round to one decimal place.b. Compare the two companies with regard to their credit card policies.

Expert Solution

a)

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

To compute: Accounts receivable turnover ratio and number of days’ sales in receivables

Given info: Sales and average accounts receivable.

### Explanation of Solution

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables

Average accounts receivables are determined as below:

Average accounts receivables for X

Average accounts receivables = (Opening accounts receivables + Closing accounts receivables

Expert Solution

b)

To determine

To provide: Conclusion about accounts receivables and credit policies.

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