Accounts Receivable Analysis
Xavier Stores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (in millions):
Sales $8,500,000 $4,585,000
Credit card receivables—beginning 820,000 600,000
Credit card receviables—ending 880,000 710,000
a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round your calculations and answers to one decimal place. Assume 365 days a year.
1. Accounts receivable turnover
2. Number of days' sales in receivables days days
b. Xavier's accounts receivable turnover is much than Lestrade's. The number of days' sales in receivables is for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables quickly than Lestrade. As a result, it takes Xavier time to collect its receivables.
Accounts receivable turnover = Sales / Average Accounts receivable
|Accounts receivable turnover||
Number of days in receivables = 365 / Accounts receivable turnover
|Number of days in receivables||37 days (365/10)||52 days (365/7)|
Xavier's accounts receivable turnover is much more than Lestrade's. The number of days' sales in receivables is less for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables more quickly than Lestrade. As a result, it takes Xavier 37 days time to collect its receivables
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