Accounts Receivable Turnover and Days’ Sales in Receivables Financial statement data for years ending December 31 for Osterman Company follow:

Question

Accounts Receivable Turnover and Days’ Sales in Receivables

Financial statement data for years ending December 31 for Osterman Company follow:

	20Y9	20Y8
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$4,284,000	$3,040,000
Accounts receivable:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .	550,000	400,000
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	640,000	550,000

Accepted Answer

a. Determine the accounts receivable turnover for 20Y9 and 20Y8.
b. Determine the days’ sales in receivables for 20Y9 and 20Y8. Use 365 days and round to one decimal place.
c. Does the change in accounts receivable turnover and the days’ sales in receivables from 20Y8 to 20Y9 indicate a favorable or unfavorable change?

a. Accounts receivable turnover:

	20Y9	20Y8
Average accounts receivable:
($550,000 + $640,000) ÷ 2 . . . . . . . . . . . . . . . . . .	$595,000
($400,000 + $550,000) ÷ 2 . . . . . . . . . . . . . . . . .		$475,000
Accounts receivable turnover:
$4,284,000 4 ÷ $595,000 . . . . . . . . . . . . . . . . . . . .	7.2
$3,040,000 4 ÷ $475,000 . . . . . . . . . . . . . . . . . . . . .		6.4

b. Days’ sales in receivables:

	20Y9	20Y8
Average daily sales:
$4,284,000 ÷ 365 days . . . . . . . . . . . . . . . . . . . . . .	$11,737.0
$3,040,000 ÷ 365 days . . . . . . . . . . . . . . . . . . . . . .		$8,328.8
Days’ sales in receivables:
$595,000 ÷ $11,737.0 . . . . . . . . . . . . . . . . . . . . . . .	50.7 days
$475,000 ÷ $8,328.8 . . . . . . . . . . . . . . . . . . . . . . . .		57.0 days

c. The increase in the accounts receivable turnover from 6.4 to 7.2 and the decrease in the days’ sales in receivables from 57.0 days to 50.7 days indicate favorable changes in the efficiency of collecting accounts receivable.

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