Question

1. In 2019, Matryoshka Ltd. in Moscow, Russia, has net credit sales of ₽9,237,950 for the year. It had a beginning accounts receivable (net) balance of ₽382,750 and an ending accounts receivable (net) balance of ₽359,880. Matryoshka’s creditors generally demand payments within 20 days. (Currency in Russian ruble, ₽)

Instructions (20%):

1. Determine accounts receivable turnover and resident period in days for Matryoshka Ltd.
2. Given Matryoshka’s 20-day payment demand from creditors, how would you evaluate the company’s liquidity to cope with it?

* If you find it difficult to show ‘₽’ sign on your answer, just put R for currency unit.

Answer 1

A) Accounts receivable turnover = Net credit Sales/Average accounts receivable

= R9237950/({R382750 + R359880} / 2)

=R9237950 / R371315

=24.879 times

Resident period in days =365^* /Accounts receivable turnover

= 365/24.879

=14.67 days   ^*365 is the total number of days in a year

B) In this case  Matryoshka Ltd. collects receivables at a interval of around 15days and also they said that Matryoshka’s creditors generally demand payments within 20 days. so the company has enough liquidity to pay the creditors.Due to the importance of cash in running a business the companies priority is to collect account receivable as quickly as possible.If the collection period is longer it may affect the cash flow of the company