Question

Look at Apple, Inc. financial statements for 2019. Compute the receivables turnover rate and days in receivables. What does that indicate to you about the company’s ability to collect receivables? How does it account for uncollectible? How do you know?

Answer 1

Receivables turnover rate = Net sales of 2019/(accounts receivable of 2019 + accounts receivable of 2018)/2

= 260,174/(22,926 + 23,186)/2

= 11.28

Days in receivable = 365/receivables turnover ratio

= 365/11.28

= 32.35

This indicates that for Apple 32.35 days’ worth of sales is locked in debtors i.e. accounts receivables.

The company accounts for uncollectible through allowance for doubtful accounts. This is because in the balance sheet we can see that Apple reports its accounts receivables as “accounts receivable, net”. The use of word “net” implies that it has deducted the amount that will likely never be paid in the form of allowance for doubtful accounts.