158k views
1 vote
Abc co. reported the following selected financial information for 2021 and 2022:

2022 2021
cash $22,000 $14,000
accounts receivable 42,000 16,000
inventories 22,000 83,000
prepaid expenses 23,000 18,000
total current assets $109,000 $131,000
total current liabilities $65,000 $72,000
net credit sales 221,000 326,000
cost of goods sold 168,000 299,000
assuming a 365 days year, what is the days' sales in receivables or days' sales outstanding (i.e., average collection period in days) for 2022?

1 Answer

2 votes

Final answer:

The Days' Sales Outstanding (DSO) for ABC Co. in 2022 is approximately 48 days. It is calculated using the average accounts receivable and net credit sales for the year.

Step-by-step explanation:

To calculate the Days' Sales in Receivables or Days' Sales Outstanding (DSO) for 2022, we will use the following formula:

DSO = (Average Accounts Receivable / Net Credit Sales) × Number of Days in the Year

To determine the average accounts receivable, we add the beginning and ending balances for the year and divide by 2. For 2022, this is:

Average Accounts Receivable = (Accounts Receivable at the beginning of 2022 + Accounts Receivable at the end of 2022) / 2
Average Accounts Receivable = ($16,000 + $42,000) / 2 = $29,000

The net credit sales for 2022 are given as $221,000, and we are assuming a year of 365 days. Plugging these numbers into the formula gives us:

DSO for 2022 = ($29,000 / $221,000) × 365 = 47.96 days

This means on average, ABC Co. took approximately 48 days to collect its receivables in 2022.

User Emreturka
by
8.0k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.