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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Accounts receivable analysis
Bassett Stores Company and Fox 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 (all numbers are in millions):

a.Determine (1) the accounts receivable turnover and (2) the days' sales in receivables for both companies. Round to nearest dollar and one decimal place.
b. Compare the two companies with regard to their credit card policies.

To determine

Concept Introduction:

Trade Receivable turnover Ratio: It is a ratio between the total credit sales and average trade receivables of the business. It tells us about the how much of our turnover happens in credit and Amount of sales to the trade receivables.

Days Sales in receivables: It means we calculate the number of days our trade receivables becomes trough credit sale.

Requirement-1:

To Calculate:

Accounts receivable turnover and the day's sales in receivables.

Explanation
    ParticularsCompany 1Company 2
    Opening Accounts Receivable(A)75000350000
    Closing Accounts Receivable (B)90000410000
    Sales (C)
To determine

Concept Introduction:

Trade Receivable turnover Ratio: It is a ratio between the total credit sales and average trade receivables of the business. It tells us about the how much of our turnover is happen in credit and how many times our sales to the trade receivables.

Days Sales in receivables: It means we calculate in how many days our trade receivables becomes trough credit sale.

Requirement-2:

To Identify:

Compare the two companies with regard to their credit card policy.

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