Question

Accounts Receivable and Inventory Turnover Use the following information to respond to the questions below. Round all numbers to 1 place past the decimal (Example: 4.1, 90.7, Current Year Prior Year Net Sales 580,000 539,000 Cost of Goods Sold 377,000 345,000 Accounts Receivable, beginning of year 61,000 73,000 61,400 61,000 Accounts Receivable, end of year Inventory, beginning of year Inventory, end of year 58,000 65,600 87,800 58,000 Current Year Prior Year Accounts Receivable Turnover AR Days (365/AR Turn) Inventory Turnover Inventory Days (365/Inv. Turn) All work saved. 17

Answer 1

Accounts Receivable Turnover = Net credit sales / Average Accounts receivables

Average Accounts Receivables =( Opening Receivables + Closing receivables ) / 2

Average Accounts Receivable for CURRENT YEAR = ( 61,000 + 61,400) /2

   =61,200

for PRIOR YEAR = ( 73,000 + 61,000) /2

=67,000

CURRENT YEAR PRIOR YEAR

ACCOUNTS RECEIVABLE TURNOVER RATIO 580,000 / 61,200 539,000 / 67,000

=9.48 = 8.04

Accounts Receivable Days ( 365 / AR turnover) 365 / 9.48 365 / 8.04

= 38.5 Days = 45.39 days

#Assumed that sales are only for credit

Inventory Turnover ratio = cost of goods sold / average Inventory

Average Inventory =( Opening Inventory / Closing Inventory ) /2

Average Inventory for CURRENT YEAR =( 58,000 +87,800) / 2

= 72,900

for PRIOR YEAR = (65,600 + 58,000) /2

= 61,800

CURRENT YEAR PRIOR YEAR

INVENTORY TURNOVER RATIO   377,000 / 72,900 345,000 / 61800   

=5.17 =5.58

INVENTORY DAYS (365/ Inv. turnover) 365 / 5.17 365 / 5.58

= 70.59 days = 65.41 days