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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
The following data are taken from the financial statements of Outdoor Patio Inc. Terms of all sales are 2/10. n/60.

a. For Years 2 and 3. determine (1) the accounts receivable turnover and (2) the days' sales in receivables. Round to nearest dollar and one decimal place.
b. What conclusions can be drawn from these data concerning accounts receivable and credit
polit ies?

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 amount of turnover in credit and Amount of sale and ratio of trade receivables.

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

Requirement-1:

To Calculate:

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

Explanation
    ParticularsYear2 Year3
    Opening Accounts Receivable(A)600000750000
    Closing Accounts Receivable (B)750000900000
    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:

What conclusion can be drawn from these data concerning accounts receivables and credit policies?

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