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 McKee Technology Inc. Terms of all sales are 2/10, n/55.

a. For 2013 and 2014, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round answers to one decimal place. Assume a 365-day year.

b. The collection of accounts receivable has SelectimproveddeterioratedItem 5 . This can be seen in both the SelectincreasedecreaseItem 6  in accounts receivable turnover and the SelectincreasedecreaseItem 7  in the collection period.

2014 2013 2012 Accounts receivable, end of year $175,000 $190,000 $204,200 Net sales on account 1,241,000 1,222,020

Explanation / Answer

Accounts Receivable Turnover= Average Credit Sales/(Accounts receivable at the beginning of the year+Accounts receivable at the end of the year)/2

2013= $12,22,020/($1,90,000+$2,04,200)/2

=12,22,020/197100

6.2

Number of Days Sales in Receivable= 365/6.2

=58.9 Days

2014= 1241000/(1,90,000+1,75,00)/2

=12,41,000/182500

=6.8

Number of Days in Sales receivable= 365/6.8

=53.7

b The collection of Accounts receivable has improved as the Accounts receivable turnover has increased and the Number of Days Sales in receivable is decreased.

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