Question

During 2020, Larsen Company's accounts receivable averaged $750,000. Larsen's 2020 income statement reported net sales of $6,780,000, uncollectible accounts expense of $160,000, and net income of $768,000. (Assume 365 days in a year.) Using the information, above compute the following for Larsen Company:

(a.) Accounts receivable turnover: (Round to the nearest two decimals)

(b.) Average number of days to collect accounts receivable (Round to nearest day)

Answer 1

Answer:

(a).

Accounts receivable turnover

9.04

(b).

Average number of days to collect accounts receivable

40 days

Calculation:

(a.) Accounts receivable turnover

Accounts receivable turnover measures how efficiently business uses its asset. We need to calculate the accounts receivable turnover, dividing the average accounts receivable for the period with the net credit sales for the year.

Accounts receivable turnover = $6,780,000 / 750,000 = 9.04

(b.) Average number of days to collect accounts receivable

Here we need to calculate the Average number of days to collect accounts receivable  by dividing the accounts receivable turnover with the number of days in the period

Average number of days to collect accounts receivable = 9.04 / 365 days = 40 days