Question

Accounts receivable turnover and days’ sales in receivables

For two recent years, Robinhood Company reported the following:

	20Y9	20Y8
Sales	$7,357,500	$6,195,000
Accounts receivable:
Beginning of year	550,000	500,000
End of year	540,000	550,000

a. Determine the accounts receivable turnover for 20Y9 and 20Y8. Round answers to one decimal place.

20Y8:

20Y9:

b. Determine the days’ sales in receivables for 20Y9 and 20Y8. Use 365 days and round all calculations to one decimal place.

20Y8:  days

20Y9:  days

c. Are the changes in the accounts receivable turnover and days’ sales in receivables from 20Y8 to 20Y9 favorable or unfavorable

Answer 1

Ans. A	Accounts receivable turnover = Net credit sales / Average receivables
	20Y8	$6,195,000 / $525,000	11.80	times
	20Y9	$7,357,500 / $545,000	13.50	times
	*Average receivable = (Beginning accounts receivables + Ending accounts receivables) / 2
	20Y8	($500,000 + $550,000) / 2	$525,000
	20Y9	($550,000 + $540,000) / 2	$545,000
Ans. B	Days' sales in receivables = Number of days in year / Accounts receivable turnover
	20Y8	365 / 11.8	30.93	days
	20Y9	365 / 13.5	27.04	days
Ans. C	Accounts receivable turnover = Favorable
	Days' sales in receivables = Favorable
	*Increase in accounts receivable turnover ratio from previous year to current year is
	considered more efficient for the company.
	*Decrease in days sales ratio is favorable as it means that the company is taking
	less time to collect it's receivables.