Question

Accounts Receivable Turnover and Days' Sales in Receivables Classic Company designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products. The company’s products include such brands as Polo by Classic, Classic Purple Label, Classic, Polo Jeans Co., and Chaps. Polo Classic reported the following for two recent years:

	For the Period Ending
	Year 2		Year 1
Sales	$3,708,400		$3,740,520
Accounts receivable	456,250		470,850

Assume that accounts receivable were $419,750 at the beginning of Year 1.

a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to one decimal place.

b. Compute the days' sales in receivables for Year 2 and Year 1. Round to one decimal place. Use 365 days per year in your calculations.

Answer 1

a) Accounts Receivable Turnover Ratio = Sales Average Accounts Receivable Year 1 Year 2 Sales $ 3,740,520 $ 3,708,400 Beginning Accounts Receivable B $ 419,750 $ 470,850 Ending Accounts Receivable C $ 470,850 $ 456,250 Average Accounts Receivable D=(B+C)/2 $ 445,300 $ 463,550 Accouts Receivable Turnover A/D 8.40 8.00 b) Days Sales in receivable = Number of days in a year Accounts Receivable Turnover Ratio Year 1 Year 2 365 Number of days in a year Accouts Receivable Turnover rat B Days Sales in Receivable A/B 8.4 43.50 45.63