In: Accounting
Accounts Receivable Analysis A company reports the following:
Net sales $1,272,390
Average accounts receivable (net) 60,590
Determine (a) the accounts receivable turnover and (b) the number of days' sales in receivables. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume a 365-day year.
a. Accounts receivable turnover
b. Number of days' sales in receivables days
The number of times a firm may sell its merchandise and collect payment from creditors is determined by its account receivable turnover ratio. The credit sales to average account receivable ratio is derived by dividing credit sales by the average account receivable.
Calculation of Accounts Receivable Turnover Ratio
Accounts Receivable Turnover Ratio = Sales/ Average account receivable
Accounts Receivable Turnover Ratio = $1,272,390/ 60,590
Accounts Receivable Turnover Ratio = 21 Times
Calculation of Day's Sales in Accounts Receivable
Days' Sales in Accounts Receivable = 365/ Accounts Receivable Turnover Ratio
Days' Sales in Accounts Receivable = 365/ 21
Days' Sales in Accounts Receivable = 17.38
Accounts Receivable Turnover Ratio = 21 Times
Days' Sales in Accounts Receivable = 17.38