Question

  

QUE 1

1993                         1994                  1995                   1996                                                                                                  

Days sales in inventory                                      140. 96                     121.38             147 .60                143 .84     

Receivables    Turnover                                         333.33                     333.33              243 .30                333.33                                                                            

(Days sales outstanding ) Days sales Receivables 1.10                        1.10                  1.56                      1.10

Explain why the days sales outstanding and the days in Receivables Turnover differs in one specific year.

Answer 1

In the year 1995, the days' sales outstanding and receivables' turnover differs from other years.Accounts receivable turnover indicates the success of the firm in collecting outstanding receivables.It shows the number of times over a given period that a company collects its accounts receivables. And days sales outstanding shows the average number of days required to collect accounts receivables.

In 1995, company's receivables turnover ratio decreased and average time required to collect the receivables increased.This may be due to less collection efforts by the company in 1995. This may also be due to the fact that customers did not pay in time in 1995 due to market or some other factors, which is why it took longer for the company to collect its receivables in 1995 than other years.