Question

Accounts Receivable Turnover and Days' Sales in Receivables

Classic Company designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products. The company’s products include such brands as Polo by Classic, Classic Purple Label, Classic, Polo Jeans Co., and Chaps. Polo Classic reported the following for two recent years:

	For the Period Ending
	Year 2		Year 1
Sales	$6,939,380		$6,930,620
Accounts receivable	704,450		726,350

Assume that accounts receivable were $646,050 at the beginning of Year 1.

a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to one decimal place.

Year 2:
Year 1:

b. Compute the days' sales in receivables for Year 2 and Year 1. Round to one decimal place. Use 365 days per year in your calculations.

Year 2:
Year 1:

Answer 1

a	Accounts receivable turnover = Sales / Average accounts receivable
	Accounts receivable turnover for year 2 = 6939380/((704450+726350)/2) = 9.7 times
	Accounts receivable turnover for year 1 = 6930620/((726350+646050)/2) = 10.1 times
b	Day's sales in receivables = 365 days in a year / Accounts receivable turnover ratio
	Day's sales in receivables for year 2 = 365 / 9.7 times = 37.6 days
	Day's sales in receivables for year 1 = 365 / 10.1 times = 36.1 days