Chapter 9 Study Guide (Bonus Points) Q- 6 Accounts Receivable Turnover The relat
ID: 2488260 • Letter: C
Question
Chapter 9 Study Guide (Bonus Points) Q- 6
Accounts Receivable Turnover
The relationship between sales and accounts receivable, computed by dividing the sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.
and The relationship between sales and accounts receivable, computed by dividing the average net accounts receivable at the end of the year by the average daily sales.Number of Days' Sales in Receivables
Financial statement data for years ending December 31 for Robinhood Company follows:
2016
2015
Sales
$7,906,000
$6,726,000
Accounts receivable:
Beginning of year
600,000
540,000
End of year
580,000
600,000
a. Determine the accounts receivable turnover for 2016 and 2015. Round your answers to one decimal place.
Accounts Receivable Turnover
2016
2015
b. Determine the number of days' sales in receivables for 2016 and 2015. Use 365 days in a year in your computations. Round interim calculations and your final answers to one decimal place.
Number of Days' Sales in Receivables
2016
days
2015
days
c. Does the change in accounts receivable turnover and the number of days' sales in receivables from 2015 to 2016 indicate a favorable or an unfavorable trend?
2016
2015
Sales
$7,906,000
$6,726,000
Accounts receivable:
Beginning of year
600,000
540,000
End of year
580,000
600,000
Explanation / Answer
a) Accounts receivable turnover = Net credit sales / Average accounts receivable
year 2016 $ 7906000 / (600000 + 580000)/2
= 13.4
Year 2015 $ 6726000 / (540000+600000)/2
= 11.8
b) Number of days, Sales in receivables = 365 days / accounts receivable turnover ratio
year 2016 365 days / 13.4 = 27.2 days
Year 2015 365 days / 11.8 = 30.9 days
c) it indicates a favourable trend