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Lailulelor Accounts receivable turnover and days' sales in receivables Financial statement data for years ending December 31 for Chiro-Solutions Company follow: 2012 2011 Sales $2,912,000 $2,958,000 Accounts receivable: Beginning of year 300,000 280,000 End of year 340,000 300,000 a. Determine the accounts receivable turnover for 2012 and 2011. If required, round the final answers to one decimal place. Accounts Receivable Turnover 2012 2011

Answer 1

a) Accts. Receivable turnover = Net Sales / Average Accts. Receivable Beginning Accounts Receivable Ending Accounts Receivable Average Accounts Receivable Net Sales Accounts Receivable turnover 20Y2 20Y1 $300,000 $280,000 $340,000 $300,000 $320,000 $290,000 [($300000 + $340000)/2=$320000; ($280000 + $300000)/2=$290000] $2,912,000 $2,958,000 9.1 10.2 [$2912000 / $320000 = 9.1; $2958000 / $290000 = 10.2] b) Days' sales in Receivables = Ending Accounts Receivable/ (Net Sales / # of days in a year) Ending Accounts Receivable Net Sales # of days in a year Days' sales in Receivables 2042 2041 $340,000 $300,000 $2,912,000 $2,958,000 365 42.6 days 37.0 days ($340000 / ($2912000 / 365) = 42.6 days; $300000 / ($2958000 / 365) = 37.0 days] 365 c) Yes, both Accounts Receivable Turnover & Days's sales in Receivables were changed from 20Y1 to 20Y2 but unfavorably. Reason: Decrease in Receivable turnover indicates that the firm takes more time to collect its receivables which is not a good sign because it will lead to unnecessary blocking of firm's working capital in accounts receivable.