Accounts Receivable and Inventory Ratios Bell Company, whose current assets at D
ID: 2541733 • Letter: A
Question
Accounts Receivable and Inventory Ratios
Bell Company, whose current assets at December 31 are shown below, had net sales for the year of $953,000 and cost of goods sold of $555,900. At the beginning of the year, Bell's accounts receivable (net) were $158,000 and its inventory was $197,000.
Round the turnover calculations to two decimal points. Use 365 days in a year and round days calculations to the nearest day (whole number).
a. What is the company's accounts receivable turnover for the year?
Answer
b. What is the company's average collection period for the year?
Answer days
c. What is the company's inventory turnover for the year?
Answer
d. What is the company's days' sales in inventory for the year?
Answer days
Explanation / Answer
a. Accounts receivable turnover = Net Credit Sales / Average accounts receivable
= $953,000 / {($169,000 + $158,000) / 2} = 5.83 times
b. Average collection period = 365 / Accounts receivable turnover
= 365 / 5.83 = 63 days
c. Inventory turnover = Cost of goods sold / Average Inventory
= $555,900 / {($203,000 + $197,000) / 2} = 2.78 times
d. Days' sales in inventory = 365 / Inventory turnover = 365 / 2.78 = 131 days