Question

The following data are taken from the financial statements of Sigmon Inc. Terms of all sales are 2/10, n/45.

	20Y3		20Y2		20Y1
Accounts receivable, end of year	$175,000		$190,000		$204,200
Sales on account	1,058,500		1,044,630

a. For 20Y2 and 20Y3, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round answers to one decimal place. Assume a 365-day year.

	20Y3		20Y2
1. Accounts receivable turnover
2. Number of days' sales in receivables		days		days

b. The collection of accounts receivable has improved . This can be seen in both the increase  in accounts receivable turnover and the decrease  in the collection period.

Answer 1

Part-1

Accounts receivable turnover ratio = Net credit sales/Average accounts receivable

20Y3= 1058500/((175000+190000)/2))

=1058500/182500= 5.8 times

20Y2 =1044630/((190000+204200/2))= 3.6 times

= 1044630/ 197100= 5.3 times

2)-Number of days sales in receiviable = Average Account receivable / Net sales*365

OR 365 days/ Accounts receivable turnover ratio

20Y3 =365 days/5.8 =62.9 days

20Y2 = 365 days/5.3 =68.9days

Part-2
Particulars	20Y3	20Y2	Remark
Accounts receivable turnover ratio	5.8 times	5.3times	Increase by	0.3 times
Number of days sales in receiviable	62.9 days	68.9Days	Decrease by	7 days