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Accounts receivable turnover and number of days' sales in receivables Financial .statement data fur years ending December 31 for Chiro-Solulions Company follows: 2016 2015 Sales $2,912,000 $2,958,000 Accounts receivable: Beginning of year 300.000 280,000 End of year 340,000 300,000 a. Determine the accounts receivable turnover for 2016 and 2015 b. Determine the number of days' sales in receivables for 2016 and 2015. Use 365 days and round to one decimal place. c. Does the change in accounts receivable turnover and the number of days’ sales in receivables from 2015 to 2016 indicate a favorable or an unfavorable trend?

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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Section
BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 8, Problem 8.6APE
Textbook Problem
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Accounts receivable turnover and number of days' sales in receivables

Financial .statement data fur years ending December 31 for Chiro-Solulions Company follows:

  2016 2015
Sales $2,912,000 $2,958,000
Accounts receivable:    
Beginning of year 300.000 280,000
End of year 340,000 300,000
  1. a. Determine the accounts receivable turnover for 2016 and 2015
  2. b. Determine the number of days' sales in receivables for 2016 and 2015. Use 365 days and round to one decimal place.
  3. c. Does the change in accounts receivable turnover and the number of days’ sales in receivables from 2015 to 2016 indicate a favorable or an unfavorable trend?

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company CS’s accounts receivable turnover ratio for 2016and 2015.

Explanation of Solution

Calculate Company CS’s accounts receivable turnover ratio for 2016.

Accounts receivableturnover}=SalesAverage accounts receivable=Sales(Accounts receivable at the beginning of the year+Accounts receivableat the end of the year2)=$2,914,000($300,000+$340,0002)=9.1 times

Hence, Company CS’s accounts receivable turnover ratio for 2016is 9.1 times.

Calculate Company CS’s accounts receivable turnover ratio for 2015

(b)

To determine

To calculate: Company CS’s days’ sales in receivables for 2016and 2015.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016are favorable or unfavorable.

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Chapter 8 Solutions

Financial & Managerial Accounting
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