- The following information is for ABC Ltd. for the last financial year
Current Ratio: 5
Quick Ratio: 1.8
Inventory Turnover: 7
Total Current Assets: $340,000
Cash: $43,000
COGS = 80% of Sales
Required:
- What were the total sales for the year?
- How many day’s sales were outstanding in Accounts Receivable?
Homework Answers
| Required 1 : |
| Total Sales for the Year = $ 1,904,000 |
| Explanation : |
| Current ratio = Total Current Assets / Total Current Liabilities |
| Here, Total Current Assets = $ 340,000 (Given ) |
| Current ratio = Total Current Assets / Total Current Liabilities |
| 5 Times = $ 340,000 / Total Current Liabilities |
| Total Current Liabilities = $ 340,000 / 5 Times |
| Total Current Liabilities = $ 68,000 |
| Quick Ratio = Quick Assets / Total Current Liabilities |
| 1.8 Times = Quick Assets / $ 68,000 |
| Quick Assets = $ 68,000 *1.8 Times |
| Quick Assets = $ 122,400 |
| Here, Quick Assets = Cash + Accounts Receivable |
| Cash = $ 43,000 (Given ) |
| Quick Assets = Cash + Accounts Receivable |
| $ 122,400 = $ 43,000 + Accounts Receivable |
| Accounts Receivable = $122,400 - $43,000 |
| Accounts Receivable = $79,400 |
| Here, Inventory = Total Current assets - Quick Assets |
| Inventory = $ 340,000 - $122,400 |
| Inventory = $ 217,600 |
| Inventory Turnover = Cost of goods sold / Average Inventory |
| Here, Inventory is treated as Average Inventory |
| Inventory Turnover = Cost of goods sold / Average Inventory |
| 7 Times = Cost of goods sold / $ 217,600 |
| Cost of goods sold (COGS)= $217,600* 7 Times |
| Cost of goods sold (COGS)= $1,523,200 |
| Here Cost of goods sold = 80% of Sales , |
| So, Total Sales = $ 1,523,200*100/80 |
| Total Sales = $ 1,904,000 |
| Required 2 : |
| Days Sales Outstanding = 15.22 Days (Rounded to 2 decimals ) |
| Explanation : |
| Days Sales Outstanding = (Account Receivable / Total Sales )*Number of days in a year |
| Here, It is assumed that Number of days in a Year = 365 Days |
| Here, It is assumed That Total Sales is treated as Credit Sales |
| Days Sales Outstanding = (Account Receivable / Total Sales )*Number of days in a year |
| Days Sales Outstanding = ($ 79,400 / $1,904,000 )* 365 Days |
| Days Sales Outstanding = 15.22 Days (Rounded to 2 decimals ) |
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