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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Accounts receivable turnover and days’ sales in receivables

Financial statement data for years ending December 31 for Robinhood Company follow:

20Y9 20Y8
Sales $7,906,000 $6,726,000
Accounts receivable:
Beginning of year 600,000 540,000
End of year 580,000 600,000
  1. a. Determine the accounts receivable turnover for 20Y9 and 20Y8.
  2. b. Determine the days’ sales in receivables for 20Y9 and 20Y8. Use 365 days and round to one decimal place.
  3. c. Does the change in accounts receivable turnover and the days’ sales in receivables from 20Y8 to 20Y9 indicate a favorable or unfavorable change?

(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 R’s accounts receivable turnover ratio for 20Y9 and 20Y8.

Explanation

Calculate Company R’s accounts receivable turnover ratio for 20Y9.

Accounts receivableturnover}=SalesAverage accounts receivable=Sales(Accounts receivable at the beginning of the year+Accounts receivableat the end of the year2)=$7,906,000($600,000+$580,0002)=13.4 times

Hence, Company R’s accounts receivable turnover ratio for 20Y9 is 13

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 20Y9 and 20Y8.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 20Y8 to 20Y9 are favorable or unfavorable.

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