Question

Question 5
The companies below reported the following information:
Sward Co. Gerlash Co.
Total Sales 185,000 280,000
Cash Sales 15,000 50,000
Accounts Receivable, beginning 47,500 75,000
Accounts Receivable, end 52,250 70,000

Instructions:
(1) Calculate the Receivable Turnover Ratio for each company
(2) Determine the Number of Days in Receivable
(3) Which company is more efficient in collecting its receivables?

Answer 1

Answer- 1)- Accounts receivable turnover ratio = Net credit sales/Average accounts receivable

Sward Co. = ($185000 - $15000)/($47500+$52250)/2

= $170000/$49875

= 3.41 times

Gerlash Co. = ($280000 - $50000)/($70500+$70000)/2

= $230000/$70250

= 3.27 times

2)- Number of days in Receivable = 365 days/ Accounts receivable turnover ratio

Sward Co. = 365 days/3.41

= 107 days

Gerlash Co. = 365 days/3.27 days

= 112 days

3)- Sward company is more efficient in collecting its receivables.