Final answer:
To determine the accounts receivable turnover, divide net credit sales by the average accounts receivable. For 20Y9, the turnover is 13.4 times, and for 20Y8 it is 11.9 times. To calculate days' sales in receivables, divide 365 by the turnover. For 20Y9, it is 27.2 days, and for 20Y8 it is 30.7 days. The changes in turnover and days' sales in receivables can be interpreted as favorable or unfavorable based on the context.
Step-by-step explanation:
To determine the accounts receivable turnover, we divide net credit sales by the average accounts receivable. Net credit sales can be calculated by subtracting the beginning accounts receivable from the end accounts receivable and adding back any cash collections. For 20Y9, the net credit sales would be:
($7,906,000 - $600,000 + $580,000)
= $7,886,000.
The average accounts receivable can be calculated by adding the beginning and ending accounts receivable and dividing by 2. For 20Y9, the average accounts receivable would be ($600,000 + $580,000) / 2 = $590,000. Now, we can calculate the accounts receivable turnover for 20Y9 by dividing net credit sales by the average accounts receivable: $7,886,000 / $590,000 = 13.4 times.
Similarly, for 20Y8, the net credit sales would be :
($6,726,000 - $540,000 + $600,000)
= $6,786,000.
The average accounts receivable would be ($540,000 + $600,000) / 2 = $570,000.
The accounts receivable turnover for 20Y8 would be $6,786,000 / $570,000 = 11.9 times.
To determine the days' sales in receivables, we divide 365 days by the accounts receivable turnover. For 20Y9, the days' sales in receivables would be 365 / 13.4 = 27.2 days. For 20Y8, the days' sales in receivables would be :
365 / 11.9 = 30.7 days.
The changes in the accounts receivable turnover and days' sales in receivables from 20Y8 to 20Y9 can be interpreted as favorable or unfavorable based on the context. A higher accounts receivable turnover generally indicates more efficient collection of accounts receivable, which could be seen as favorable. Similarly, a lower days' sales in receivables indicates a faster collection of accounts receivable, which is also favorable.