At the end of 2019, Geisel, Inc has a $1,000 debit balance in the Allowance for...

At the end of 2019, Geisel, Inc has a $1,000 debit balance in the Allowance for Doubtful Accounts, before adjusting entries were prepared. Credit sales for 2019 totaled $510,000. Sales returns for 2019 were $10,000. Credit Sales for 2018 were $610,000. Sales returns for 2018 were $10,000. The following aging analysis of Accounts Receivable was prepared at December 31, 2019:

Age Classification	12/31/19 $ Amount	Estimated % Uncollectible
Current/not yet due	110,000	1%
1-30 days past due	15,000	2%
31-60 days past due	10,000	6%
61-90 days past due	5,000	12%
over 90 days past due	8,000	30%
Total	$148,000

Calculate the accounts receivable turnover ratio and the days to collect for 2018 and 2019 (round each calculation to one decimal place). The net receivables balance reported on the company’s 12/31/17 financial statements was $120,000. The net receivables balance reported on the 12/31/18 financial statements was $130,000. [4 marks]

2019

2018

2. Discuss the implications of the receivables turnover ratio and days to collect as calculated in part b. Discuss possible reasons for any changes in the calculations.

Solutions

Expert Solution

1. Calculation of Accounts Receivable Turnover Ratio & Days to Collect is as below:

Particulars	2019	2018
Credit Sales (a)	5,10,000.00	6,10,000.00
Sales Return (b)	10,000.00	10,000.00
Net Cedit Sales = c = (a-b)	5,00,000.00	6,00,000.00

Opening Accounts Receivable (d)	1,30,000.00	1,20,000.00
Closing Accounts Receivale (e)	1,48,000.00	1,30,000.00
Average Accounts Receivable = f = (d+e)/2	1,39,000.00	1,25,000.00

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable = c / f	3.6	4.8

No. of days in year	365	365
Days to Collect = 365 / Accounts Receivable Turnover Ratio	101.5	76.0

2. Implications of the Accounts receivables turnover ratio and days to collect as calculated above:

Accounts receivables turnover ratio: This ratio measures how efficient is the company in collecting its debts. This ratio measures how many times does a company collects its accounts receivable during a given period of time.

Days to collect: This ratio measures the time taken by the company to convert its credit sales into cash. This ratio tells the number of days in which the company's accounts receivable gets converted into cash.

Reasons for changes in the calculation: The Accounts receivable turnover ratio of the company in 2018 was higher than the Accounts receivable turnover ratio in 2019, hence, the company's efficieny in debt collection has gone down in 2019. The reason for lower turnover ratio is lower credit sales and higher average accounts receivable.

Further, the Days to collect for the company has gone up in 2019 against 2018. This indicates that the time taken by the company to convert its credit sales into cash has gone up, therefore indicating decline in efficiency. This is because the accounts receivable turnover ratio of the company has gone down from 2018 to 2019.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

The allowance for doubtful accounts has a debit balance of $1,000 at the end of the...

The allowance for doubtful accounts has a debit balance of $1,000 at the end of the year (before adjustment), and uncollectible accounts expense is estimated at $10,000. If accounts receivable are $700,000, the amount of the adjusting entry to record the allowance for doubtful accounts using the aging of receivables method is:

At the end of 2019, Splish Brothers Inc. has accounts receivable of $778,100 and an allowance...

At the end of 2019, Splish Brothers Inc. has accounts receivable of $778,100 and an allowance for doubtful accounts of $63,200. On January 24, 2020, the company learns that its receivable from Megan Gray is not collectible, and management authorizes a write-off of $7,400. 1) Prepare the journal entry to record the write-off. 2) What is the cash realizable value of the accounts receivable (1) before the write-off and (2) after the write-off?

On December 31, 2015, Andy Inc. has a debit balance of $1,500 for the Allowance for Uncollectible Accounts

11. On December 31, 2015, Andy Inc. has a debit balance of $1,500 for the Allowance for Uncollectible Accounts before any year-end adjustment. Andy Inc. also has the following information for its accounts receivable and the estimated percentages of bad debts for different past due amounts: Age Group (days past due) Accounts Receivable Estimated Percent Uncollectible 0-30 $50,000 5% 31-60 $20,000 10% 61-90 $10,000 20% What is the amount of bad debt expense to be reported on Andy Inc's financial statements for 2015? 6000 8000 5000 No answer 12. McConnell's Bakeries had the following...

Winstead & Company has Accounts receivable of $120,000 and a Debit balance of Allowance for Doubtful...

Winstead & Company has Accounts receivable of $120,000 and a Debit balance of Allowance for Doubtful Accounts $1,000 in the Allowance for Doubtful Accounts. and .The firm estimates that two percent of the current accounts and five percent of the past due account will prove to be uncollectible. The adjusting entry to provide for the bad debts expenses under the aging method should be for what amount?

1) Which of the following accounts usually has a debit balance? a. Freight-In b. Allowance for...

1) Which of the following accounts usually has a debit balance? a. Freight-In b. Allowance for Doubtful Accounts c. Sales tax Payable d. Purchase Discounts 2) If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as a. FOB destination b. FOB n/30 c. FOB seller d. FOB shipping point 3) Merchandise with an invoice price of $5,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs...

If the Manufacturing Overhead account has a debit balance at the end of a period, it...

If the Manufacturing Overhead account has a debit balance at the end of a period, it means that actual overhead costs were a.greater than overhead costs applied to jobs. b.actual overhead costs were less than overhead costs applied to jobs. c.actual overhead costs were equal to overhead costs applied to jobs.d. no jobs have been completed.

At the end of the year, a company has a balance in Allowance for Uncollectible Accounts...

At the end of the year, a company has a balance in Allowance for Uncollectible Accounts of $2,000 (credit) before any year-end adjustment. The balance of Accounts Receivable is $180,000. The company estimates that 5% of accounts receivable will not be collected over the next year. Record the adjustment for uncollectible accounts. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

At the end of the current year, the accounts receivable account has a debit balance of...

At the end of the current year, the accounts receivable account has a debit balance of $932,000 and sales for the year total $10,570,000. The allowance account before adjustment has a debit balance of $12,600. Bad debt expense is estimated at 1/2 of 1% of sales. The allowance account before adjustment has a debit balance of $12,600. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $40,300. The allowance account before adjustment has a credit...

At the end of the current year, the accounts receivable account has a debit balance of...

At the end of the current year, the accounts receivable account has a debit balance of $1,095,000 and sales for the year total $12,420,000. The allowance account before adjustment has a debit balance of $14,800. Bad debt expense is estimated at 3/4 of 1% of sales. The allowance account before adjustment has a debit balance of $14,800. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $47,400. The allowance account before adjustment has a credit...

At the end of the current year, the accounts receivable account has a debit balance of...

At the end of the current year, the accounts receivable account has a debit balance of $777,000 and sales for the year total $8,810,000. The allowance account before adjustment has a debit balance of $10,500. Bad debt expense is estimated at 3/4 of 1% of sales. The allowance account before adjustment has a debit balance of $10,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $33,600. The allowance account before adjustment has a credit...

Subjects