Question

Accounts Receivable Analysis

Bassett Stores Company and Fox Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (all numbers are in millions):

	Bassett		Fox
Merchandise sales	$292,000		$408,800
Credit card receivables—beginning	44,298		40,499
Credit card receivables—ending	36,982		31,181

a. (1) Determine the accounts receivable turnover for both companies. Round to one decimal place.

Bassett Stores
Fox Stores

   (2) Determine the days' sales in receivables for both companies. Assume there are 365 days in the year. Round intermediate calculations to the nearest whole dollar and final answers to one decimal place.

Bassett Stores	days
Fox Stores	days

Answer 1

(1).

Bassett Stores	7.2
Fox Stores	11.4

Explanation;

Formula for Accounts receivable turnover ratio = (Net credit sales / Average accounts receivable)

Accounts receivable turnover for Bassett Stores;

Net credit sales is given = $292000

Average accounts receivable ($44298 + $36982 / 2) = $40640

Accounts receivable turnover ratio ($292000 / $40640) = 7.2 (Approx.)

Accounts receivable turnover for Fox Stores;

Net credit sales is given = $408800

Average accounts receivable ($40499 + $31181 / 2) = $35840

Accounts receivable turnover ratio ($408800 / $35840) = 11.4 (Approx.)

(2).

Bassett Stores	50.7 days
Fox Stores	32 days

Explanation;

Formula for days' sales in receivables = (365 / Accounts receivable turnover ratio)

Days' sales in receivables for Bassett Stores;

Number of days = 365

Accounts receivable turnover ratio = 7.2

Days’ sales in receivable (365 / 7.2) = 50.7 days

Days' sales in receivables for Fox Stores;

Number of days = 365

Accounts receivable turnover ratio = 11.4

Days’ sales in receivable (365 / 11.4) = 32.01 days OR 32 days