Question

ShipIt Corporation reported the following rounded amounts (in millions): 2016 2015 Accounts Receivable $ 5,435 $ 5,140 Allowance for Doubtful Accounts (305 ) (310 ) Accounts Receivable, Net of Allowance $ 5,130 $ 4,830 Net Sales (assume all on credit) $ 40,500 $ 39,000 Required: Determine the receivables turnover ratio and days to collect for 2016. (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 1 decimal place.)

Answer 1

Answer:

Receivable turnover ratio = 8.1 times

Account receivable days = 44.9 days

Explanation:

Th account receivable days is the  average length of time it takes a business to collect amount due on  account from customers

Account receivable ratio = Net sales /Average account receivable

Account receivable days = (Average receivable/Net sales) × 365 days

Average account receivable

= (Receivable at the beginning + Receivable at the end)/2

= ( 4,830+ 5,130)/2

=4980

Note that the accounts receivable balance at the end of 2015 will be the opening balance at the beginning of 2016. The closing balance of 4,830 of 2015 will be the opening balance for 2016

Receivable turnover ratio

=45,500/4980

= 8.1 times

Account receivable days

= (4980/45,500)× 365 days

= 44.9 days