Accounts Receivable Turnover and Days\' Sales in Receivables Quasar, Inc. report

Question

Accounts Receivable Turnover and Days' Sales in Receivables

Quasar, Inc. reported the following: Year 2 Year 1 Sales $3,325,880 $3,390,120 Accounts receivable 251,850 244,550 Assume that accounts receivable were $281,050 at the beginning of Year 1.

a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to one decimal place.

Year 2:

Year 1:

b. Compute the days' sales in receivables for Year 2 and Year 1. Round interim calculations and final answers to one decimal place. Use 365 days per year in your calculations.

Year 2: ____days

Year 1: ____ days

Explanation / Answer

a) Accounts receivable turnover ratio = Net Annual Credit Sales
(Beginning Accounts Receivable + Ending Accounts Receivable) / 2

= Net Annual Credit Sales
Average accounts receivable

NOTE: Closing Accounts receivable of year 1 will become opening accounts receivable of year 2 i.e. $244550

b) Days' sales in receivables:

Days' sales in receivables=No. of days in a year/Accounts receivable ratio

Year 2 = 365/13.4 = 27.2 days

Year 1 = 365/12.9 = 28.3 days

Particulars Year2 Year1 Sales $3,325,880 $3,390,120 Average accounts receivable ($244550+$251850)/2=$248200 ($281050+$244550)/2=$262800 Ratio $3325880/248200=13.4 $3,390,120/$262800=12.9

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