The following data are taken from the financial statements o

The following data are taken from the financial statements of Rainsberger Company. 2018 s5s0,000 $520,000 3,960,000 3,100,000 2017 Accounts receivable (net), end of year Net sales on account Terms for all sales are 1/10, n/60. Compute for each year the accounts receivable turnover. At the end of 2016, accounts receivable (net) was $480,000. (Round answers to i decimal place, e.g. 1.6.) 2018 2017 Accounts receivable turnover times times I?NKTO TEXT Compute for each year the average collection period. At the end of 2016, accounts receivable (net) was $480,000. (Use 365 days for calculation. Round answers to 1 decimal place, e.g. 1.6.) 2018 2017 Average collection period days days

Solution

Answer 1 Accounts receivable turnover ratio = net Sales / Average accounts receivables Average accounts receivables for 2017 = [$520000 + $480000]/2 = $5,00,000 Average accounts receivables for 2018 = [$550000 + $520000]/2 = $5,35,000 2018 2017 Net Sales $3,960,000.00 $3,100,000.00 / Average accounts receivables $535,000.00 $500,000.00 Accounts Receivables Turnover ratio                      7.4 6.2 Answer 2 Average collection period = 365 days / Accounts receivables turnover 2018 2017 No.of days in a year 365 365 Accounts receivables turnover                      7.4 6.2 Average collection period (in days)                   49.3                   58.9 Answer 3 Average collection period is the average number of days between the date a credit sale is made and the date payment is received from the credit sale. The average collection period in 2018 is lower compared to 2017.It means that company is collecting payments faster in 2018.It also means that credit terms are too strict in 2018 compared to 2017.