Question

The following information is taken from Reagan Company's December 31 balance sheet: Cash and cash equivalents $ 9,019 Accounts receivable $ 73,422 Merchandise inventories $ 63,362 Prepaid expenses $ 4,700 Accounts payable $ 15,550 Notes payable $ 89,638 Other current liabilities $ 10,100 If net credit sales for the current year were $608,500, the firm's days' sales uncollected for the year is: (Use 365 days a year.)

Answer 1

The firm's days' sales uncollected for the year is 44 days.

Step-by-step explanation:

Days’ Sales Uncollected is a liquidity ratio that is used to measure the number of days it takes a company to collect cash from its customers. It is the number of days before the receivable or credit balances from customers will be collected. It is also known as average collection period or days sales outstanding.

The formula for calculating the Days’ Sales Uncollected is given as follows:

Days’ Sales Uncollected = (Account receivable / Net credit sales) * 365 days

Substituting the relevant values from the question into the formula above, we have:

Days’ Sales Uncollected = ($73,422 / $608,500) * 365 =

Days’ Sales Uncollected = 0.120660640920296 * 365 days

Days’ Sales Uncollected = 44 days approximately.

Therefore, the firm's days' sales uncollected for the year is 44 days. That is, it takes the firm approximately 44 days to collect cash from his customers on average.