Question 9.6: Accounts Receivable Turnover and Number of Days’ Sales in Re......
Accounts Receivable Turnover and Number of Days’ Sales in Receivables
Financial statement data for years ending December 31 for Osterman Company are as follows :
a. Determine accounts receivable turnover for 2012 and 2011.
b. Determine the number of days’ sales in receivables for 2012 and 2011.
c. Does the change in accounts receivable turnover and the number of days’ sales in receivable from 2011 to 2012 indicate a favorable or an unfavorable trend?
| 2012 | 2011 | ||
| Net sales | $4,284,000 | $3,040,000 | |
| Accounts receivable: | |||
| Beginning of year | 550,000 | 400,000 | |
| End of year | 640,000 | 550,000 | |
a. Accounts receivable turnover:
b. Number of days’ sales in receivables:
c. The increase in the accounts receivable turnover from 6.4 to 7.2 and the decrease in the number of days’ sales in receivables from 57.0 days to 50.7 days indicate favorable trends in the efficiency of collecting accounts receivable
a.
| 2012 | 2011 | |||
| Average accounts receivable: | ||||
| ($550,000 + $640,000)/2 | $595,000 | |||
| ($400,000 + $550,000)/2 | $475,000 | |||
| Accounts receivable turnover: | ||||
| $4,284,000/$595,000 | 7.2 | |||
| $3,040,000/$475,000 | 6.4 | |||
b.
| 2012 | 2011 | |||
| Average daily sales: | ||||
| $4,284,000/365 days | $11,737 | |||
| $3,040,000/365 days | $8,329 | |||
| Number of days’ sales in receivables: | ||||
| $595,000/$11,737 | 50.7 days | |||
| $475,000/$8,329 | 57.0 days | |||