Question

Accounts Receivable Analysis

The following data are taken from the financial statements of Sigmon Inc. Terms of all sales are 2/10, n/45.

	20Y3		20Y2		20Y1
Accounts receivable, end of year	$725,000		$650,000		$600,000
Sales on account	5,637,500		4,687,500

a. For 20Y2 and 20Y3, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume a 365-day year.

	20Y3		20Y2
1. Accounts receivable turnover	_____		_____
2. Number of days' sales in receivables	_____	days	_____	days

b. The collection of accounts receivable has_____ . This can be seen in both the_____ in accounts receivable turnover and the______ in the collection period.

Answer 1

• Requirement [a]

		20Y3	20Y2
A	Sales on account	$5,637,500	$4,687,500
B	Beginning Accounts receivables	$650,000	$600,000
C	Ending accounts receivables	$725,000	$650,000
D = (B+C) / 2	Average accounts receivables	$687,500	$625,000
E = A/D	Accounts receivables Turnover	8.2	7.5	Answer
F = 365 / E	Number of days in sales receivables	44.5	48.7	Answer

• [b]

The collection of account receivables has INCREASED. This can be seen in both the INCREASE in accounts receivables turnover and the DECREASE in collection period.