Question

Presented below is information for Headland Company.

1. Beginning-of-the-year Accounts Receivable balance was $21,400.
2. Net sales (all on account) for the year were $105,300. Headland does not offer cash discounts.
3. Collections on accounts receivable during the year were $81,300.

Required:
Compute Headland’s accounts receivable turnover and days to collect receivables for the year.

Answer 1

Answer and Explanation:

The computation is shown below:

For account receivable turnover ratio

Accounts Receivable Turnover is

= Sales ÷ Average Receivables

Beginning Accounts Receivable $21,400

Add: Sales $105,300

Less: Cash Receipts $81,300

Ending Accounts Receivable $45,400

Now

Accounts Receivable Turnover is

= $105,300 ÷ ($21,400 + $45,400) ÷ 2

= 3.15 times

Now days to sell is

= 365 ÷ 3.15 times

=116 days