   Chapter 9, Problem 9.27EX

Chapter
Section
Textbook Problem

Accounts receivable turnover and days’ sales in receivablesThe Campbell Soup Company manufactures and markets food products throughout the world. The following sales and receivable data (in millions) were reported by Campbell Soup for two recent years:   Year 2 Year 1 Sales $8,082$8,268 Accounts receivable 647 670 Assume that the accounts receivable (in thousands) were $635 million at the beginning of Year 1. a. Compute the accounts receivable turnover for Year 2 and Year 1. Round average accounts receivable to one decimal place and accounts receivable turnover to two decimal places. b. Compute the days’ sales in receivables at the end of Year 2 and Year 1. Use 365 days and round to one decimal place. c. What conclusions can be drawn from these analyses regarding Campbell’s efficiency in collecting receivables? (a) To determine Accounts receivable turnover Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In simple, it indicates the number of times the average amount of net accounts receivables has been collected during a particular period. To calculate: The accounts receivable turnover for Year 2 and Year 1. Explanation Calculate accounts receivable turnover ratio for Year 2. Accountsreceivableturnover for Year 2}=SalesAverageaccountreceivable=Sales(Accountsreceivable, ending +Accountsreceivable, beginning2)=$8,082($647+$6702)=12.27times

Calculate accounts receivable turnover ratio for Year 1

(b)

To determine

Average collection period:

Average collection period indicates the number of days taken by a business to collect its outstanding amount of accounts receivable on an average.

To calculate: The day’s sales in receivables at the end of Year 2 and Year 1.

(c)

To determine

To conclude: The Efficiency of Company CS’s management in collecting accounts receivables.

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