Question

The following data are taken from the financial statements: Average accounts receivable (net) Accounts receivable (net), end of year Current Year Preceding Year $123,000 $95,000 129,012 87,516 950,000 825,000 Sales on account a. Assuming that credit terms on all sales are n/45, determine for each year (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round intermediate calculations to whole number and final answers to two decimal place. 1. The accounts receivable turnover: Current Year Preceding Year 2. The number of days' sales in receivables: Assume a 365-day year. Current Year days Preceding Year days b. Comment on any significant trends revealed by the data. Sales during the current year, an) n/45, the current year turnover indicates that receivables indicates a(n) trend. trend. The accounts receivable turnover has . Based on credit terms of receivables are not being collected within the 45-day period. Likewise, the number of days' sales in

Answer 1

Requirement (a) Requirement (1) The Accounts Receivable Turnover : Current year=$950,000/$123,000=7.72 Preceeding year=$825,000/$95,000=8.68 Requirement (2) Current year=$129,012*365/$950,000=49.57=50days(around) Preceeding year=$87,516*365/$825,000=38.72=39 days(around) Requirement (b) Sales increased during the current year A Favourable trend The accounts receivable turnover has declined Based on Credit termsof n/45 the current year turonver indicates Some Account receivables are not collected with in 45 day period Like wise the number of days sales in receivable indicates unfavourable trend (38.72 increased to 49.57) Note : Please comment down for any further clarifications