2014 2013 2012
Accounts receivable, end of year $ 500,000 $ 475,000 $440,000
Net sales on account 3,412,500 2,836,500
a. For 2013 and 2014, determine (1) the accounts receivable turnover and (2) the number of days’ sales in receivables. Round to the nearest dollar and one decimal place.
b. What conclusions can be drawn from these data concerning accounts receivable and credit policies?
Answer:
a. (1) Accounts Receivable Turnover = Net Sales
Average Accounts Receivable
2014: $3,412,500
$487,500*
$2,836,500
= 7.0 2013:
$457,500 **
= 6.2
*$487,500 = ($475,000 + $500,000) ÷ 2 **$457,500 = ($440,000 + $475,000) ÷ 2
(2) Number of Days’ Sales in Receivables = Average Accounts Receivable
Average Daily Sales
1 $487,500
2014: = 52.1 days 2013:
$9,349 2
1 $487,500 = ($475,000 + $500,000) ÷ 2
2 $9,349 = $3,412,500 ÷ 365 days
3 $457,500 = ($440,000 + $475,000) ÷ 2
4 $7,771 = $2,836,500 ÷ 365 days
b. The collection of accounts receivable has improved. This can be seen in both the increase in accounts receivable turnover and the reduction in the collection period. The credit terms require payment in 55 days. In 2013, the collection period exceeded these terms. However, the company apparently became more aggressive in collecting accounts receivable or more restrictive in granting credit to customers. Thus, in 2014, the collection period is within the credit terms of the company.