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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
Chapter 6, Problem 6.9.2MBA
Textbook Problem
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Accounts receivable and inventory turnover
The following data (in millions) were adapted from recent financial statements of CVS Health Corporation (CVS).

Chapter 6, Problem 6.9.2MBA, Accounts receivable and inventory turnover The following data (in millions) were adapted from recent
Compute the days’ sales in receivables for Years 1 and 2. Round to the nearest day.

To determine

Concept Introduction:

Accounts receivable turnover ratio:

This is an efficiency ratio that indicates the conversion of accounts receivable into cash. This ratio is calculated by dividing the Net credit Sales by the Average accounts receivable. The formula to calculate this ratio is as follows:

  Accounts receivable turnover ratio = Net credit SalesAverage accounts receivable 

Days Sales in receivable ratio:

This is an efficiency ratio that indicates the period for which credit sales remain as receivable. The ratio is calculated by dividing 365 days by the Accounts receivable turnover ratio. The formula to calculate this ratio is as follows:

  Days Sales in receivable ratio= 365Accounts receivable turnover ratio

To Calculate:

The Days Sales in receivables for years 1 and 2

Explanation of Solution

The Days Sales in receivables for years 1 and 2 are calculated as follows:

    $ in Millions Year 1 Year 2
    Sales (A) $ 233,715

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Survey of Accounting (Accounting I)
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