Answer: For 20Y3 --8.2 times, 44.5 days
For 20Y2----7.5 times 48.7 days
Explanation:
20Y3 20Y2 20Y1
Accounts receivable, end of years $ 725,000; $ 650,000 $ 600,000'
Sales on account 5,637,500 4,687,500
For 20Y3 --
Accounts receivable turnover = Net credit Sales / Average Account receivable
Net Credit sales= $5,637,500
Average Account receivable
=(End of years of yr2 and 3)/ 2=($ 725,000 +$ 650,000) /2 = $1.375,000/2= $687, 500
Accounts receivable turnover = $5,637,500/ $687,500=8.2 times
Number of days sales in receivables = 365 days / Accounts receivable turnover
= 365/8.2 = 44.5 days
For 20Y2
Accounts receivable turnover = Net credit Sales / Average Account receivable
Net Credit sales= $4,687,500
Average Account receivable
=(End of years of yr2 and 1)/2 = ($ 650,000 + $ 600,000') /2 = $/2= $625,000
Accounts receivable turnover = $4,687,500/ $625,000=7.5 times
Number of days sales in receivables = 365 days / Accounts receivable turnover
= 365/7.5= 48.7 days
b. Accounts receivable in cash owed by clients to a company from the invoices the company sent to them
Also, Credit policy is a requirement that establishes the payment terms of a company to its clients so as to eliminate the risk of loss. The credit policy differs and from company and comprises of the payment terms( the duration of time) or credit period, collections, discounts and operational standard
---->The relationship between credit policy and account receivables is that is that when a company establishes that payment terms are increased and on credit, the accounts receivables increases reducing a company''s finance. A company that establishes a decrease in the credit period duration will have a reduced account receivable providing fast financial returns to the company.
From the results obtained from 20Y3 and 20Y2, We will see that
Particulars 20Y3 20Y2 Remark
Aturnover ratio 8.2times 7.5 times Increase by 0.7 times
Number of days sales
in receiviable 44.5 days 48.7days Decrease by 4.2 days
In year 20Y3, THE higher ratio of accounts receivable turnover shows that cash for sales will more likely to be collected than a 20Y2 with a lower ratio of accounts receivable turnover.
