Accounts Receivable Analysis The following data are taken from the financial sta

Question

Accounts Receivable Analysis The following data are taken from the financial statements of Outdoor Patio Inc. Terms of all sales are 2/10, n/60. Year 1 Year 2 $219,000 1,176,760 Year 3 $204400 219,000 s233,600 Accounts receivable, end of year Sales a. For Years 2 and 3, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Assume there are 365 days in the year. Round intermediate calculations to the nearest whole dollar and final answers to one decimal place. $233,600 1,227,860 Year 3 Year 2 1. Accounts receivable turnover 2. Number of days' sales in receivables b. What conclusion can be drawn from these data concerning accounts receivable and credit policies? days days The collection of accounts receivable has This can be seen in the in accounts receivable turnover and the in the collection period. The company either became restrictive in granting credit to customers in Year 3. aggressive in collecting accounts receivable or

Explanation / Answer

[204400+219000]/2

211700

]233600+219000]/2

226300

1227860/211700

5.8

1176760/226300

5.2

365/5.8

62.9 days

365/5.2

70.2 days

b)

1)Increased /Improved

2)Increase

3)decrease

4)more

5)more

Formula Year 3 Year 2 Average receivable [beginning+ending ]/2

[204400+219000]/2

211700

]233600+219000]/2

226300

Accounts receivable turnover sales /average receivable

1227860/211700

5.8

1176760/226300

5.2

number of days sales in receivable 365 /accounts receivable turnover

365/5.8

62.9 days

365/5.2

70.2 days

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