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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

Twenty metrics of liquidity, solvency, and profitability

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8


Instructions

Days’ sale in receivable

To determine

Concept Introduction:

Accounts receivable turnover ratio:

This is an efficiency ratio that indicates the conversion of the 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 the 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 Receivable.

Explanation

The Days Sales in Receivable is calculated as follows:

    20Y8
    Net Credit Sales (A) $ 10,000,000
    Beginning Accounts Receivable (B) $ 510,000

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