John Byers owns and operates Byers Building Supplies. The following information

Question

John Byers owns and operates Byers Building Supplies. The following information was taken from his financial statements: Balance Sheet: 12/31-2 12/31-1 Accounts Receivabe $700 $500 Inventory 300 100 Income Statement: Net Credit Sales = $7200 Cost of Goods Sole= 5,000 All sales are made on account. Based on the above informatin, on average, approximately how many days pass from the time Byers purchases inventory until he receives cash from customers? The answer is supposed to be 45 days, but I keep coming up with 31 days. Can you help me figure this out please?

Explanation / Answer

Days Sales outstanding DSO = Average Accounts Receivable/Net Credit sales in month so DSO = 365*((700+500)/2)/7200 = 30 days Inventory Turnover (ITR) = Cost of Goods Sold/Average Inventory ie ITR = (5000)/((300+100)/2) = 25 Days

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