Question

Accounts Receivable Analysis

Xavier Stores Company and Lestrade 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 (in millions):

	Xavier		Lestrade
Sales	$8,500,000		$4,585,000
Credit card receivables—beginning	820,000		600,000
Credit card receviables—ending	880,000		710,000

a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round your calculations and answers to one decimal place. Assume 365 days a year.

	Xavier		Lestrade
1. Accounts receivable turnover
2. Number of days' sales in receivables		days		days

b. Xavier's accounts receivable turnover is much higher  than Lestrade's. The number of days' sales in receivables is lower  for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables more  quickly than Lestrade. As a result, it takes Xavier less  time to collect its receivables.

Answer 1

	Xavier	Lestrade
1. Accounts receivable turnover	10.0	7.0
2. Number of days' sales in receivables	36.5	52.1
b
Xavier's accounts receivable turnover is much higher than Lestrade's. The number of days' sales in receivables is lower for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables more quickly than Lestrade. As a result, it takes Xavier less time to collect its receivables.
Workings:
Average Receivables:
Xavier	850000	=(820000+880000)/2
Lestrade	655000	=(600000+710000)/2
	Xavier	Lestrade
Sales	8500000	4585000
Divide by Average Receivables	850000	655000
Accounts receivable turnover	10.0	7.0
	Xavier	Lestrade
Days in a year	365	365
Divide by Accounts receivable turnover	10.0	7.0
Number of days' sales in receivables	36.5	52.1