Question

The following information is taken from Reagan... The following information is taken from Reagan Company's December 31 balance sheet: Cash and cash equivalents $8,419 Accounts receivable 70,422 Merchandise inventories 60,362 Prepaid expenses 4,100 Accounts payable $14,950 Notes payable 86,638 Other current liabilities 9,500 If net credit sales for the current year were $612,000, the firm's days' sales uncollected for the year is:

The following information is taken from Reagan...
The following information is taken from Reagan Company's December 31 balance sheet:
Cash and cash equivalents $8,419
Accounts receivable 70,422
Merchandise inventories 60,362
Prepaid expenses 4,100
Accounts payable $14,950
Notes payable 86,638
Other current liabilities 9,500
If net credit sales for the current year were $612,000, the firm's days' sales uncollected for the year is:

Answer 1

The days' sales uncollected for Reagan Company is calculated by dividing its accounts receivable ($70,422) by the average daily credit sales ($612,000 divided by 365 days). This results in approximately 42 days, indicating the average number of days it takes for the company to collect payment after a sale on credit.

Step-by-step explanation:

The question pertains to calculating the days' sales uncollected (DSU) for Reagan Company. This metric, also known as the average collection period, is crucial for businesses to understand the efficiency of their credit policies and the speed at which they can convert sales into cash.

The DSU can be found by dividing the total accounts receivable by the average daily credit sales and then multiplying by the number of days in the period, typically 365 for a year.

To calculate the DSU, we follow these steps:

1. Divide the net credit sales by 365 days to find the average daily credit sales. For Reagan Company, this would be $612,000 / 365 = $1,675.34.
2. Divide the accounts receivable by the average daily credit sales. For Reagan Company, $70,422 / $1,675.34 equals approximately 42 days.

The firm's days' sales uncollected for the year is therefore approximately 42 days.