Question

Verne Corporation disclosed the following financial information (in millions) in its recent annual report: 2018 2019 Net Sales $167,096 $181,662 Beginning Accounts Receivable (net) 13,896 15,100 Ending Accounts Receivable (net) 15,100 13,598 Calculate the accounts receivable turnover ratio for both years. (Round your answer to two decimal points.) Calculate the average collection period for both years. (Use 365 days for calculation. Round your answer to the nearest whole number.) Is the company’s accounts receivable management improving or deteriorating?

Answer 1

2018: 11.53; 32 days

2019: 12.66; 29 days

Step-by-step explanation:

For 2018:

Average accounts receivable:

= (Opening Accounts receivable + Closing Accounts receivable) ÷ 2

= (13,896 + 15,100) ÷ 2

= $14,498

(i) Accounts receivable turnover ratio:

= Net sales ÷ Average accounts receivable

= $167,096 ÷ $14,498

= 11.53

(ii) Average collection period:

= 365 days ÷ Accounts receivable turnover ratio

= 365 days ÷ 11.53

= 32 days

For 2019:

Average accounts receivable:

= (Opening Accounts receivable + Closing Accounts receivable) ÷ 2

= (15,100 + 13,598) ÷ 2

= $14,349

(i) Accounts receivable turnover ratio:

= Net sales ÷ Average accounts receivable

= $181,662 ÷ $14,349

= 12.66

(ii) Average collection period:

= 365 days ÷ Accounts receivable turnover ratio

= 365 days ÷ 12.66

= 29 days