Question

The following data are taken from the financial statements of Sigmon Inc. Terms of all sales are 2/10, n/45.

20Y3 20Y2 20Y1
Accounts receivable, end of year $725,000 $650,000 $600,000
Sales on account 5,637,500 4,687,500
a. For 20Y2 and 20Y3, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Assume a 365-day year. 20Y3 20Y2 1.
b. The collection of accounts receivable has___. This can be seen in both the___in accounts receivable turnover and the____in the collection period.

Answer 1

1. 20Y3 20Y2

A Sales on account $5,637,500 $4,687,500

B Beginning Accounts receivables $650,000 $600,000

C Ending accounts receivables $725,000 $650,000

Average accounts receivables $687,500 $625,000 [D=(B+C) / 2[

Accounts receivables Turnover 8.2 7.5 [E=A/D]

No of days in sales receivables 44.5 48.7 [F=365 / E]

2. The collection of account receivables has INCREASED. This can be seen in both the INCREASE in accounts receivables turnover and the DECREASE in collection period.