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 $660,000 $600,000

Sales on account 5,638,000 4,528,000

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

a.) For 20Y2 and 20Y3, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Assume a 365-day year. Do not round intermediate calculations. Round your answers to one decimal place.

20Y3 20Y2

1. Accounts receivable turnover

2. Number of days' sales in receivables days days

b.) The collection of accounts receivable has (improved/deteriorated) . This can be seen in both the (increase/decrease) in accounts receivable turnover and the (increase/decrease) in the collection period.

Answer 1

1)

a) Accounts Receivable turn Over = Net Sales / Average Accounts Receivable

20Y3 = 5638000 / 692500 = 8.1

20Y2 = 4528000 / 630000 = 7.1

Average AR = Opening Balance of Accounts Receivable + Closing Blance of Accounts Receivable / 2

b) Number of Days Sales in receivable sale = Average Accounts Receivable / Net Credit Sale x 365

20Y3 = 692500 / 5638000 x 365 = 44.8

20Y2 = 630000 / 4528000 x 365 = 50.8

2) Improved in Collection of accounts receivabe

increase in Accounts receivable turn over

decrease in collection Period.