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13 November, 07:18

The following balance sheet information was provided by Western Company: Assets Year 2 Year 1 Cash $ 4,000 $ 2,000 Accounts receivable 15,000 12,000 Inventory $ 35,000 $ 38,000 Assuming Year 2 net credit sales totaled $270,000, what were the company's average days to collect receivables? (Use 365 days in a year. Do not round intermediate calculations.)

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  1. 13 November, 07:44
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    The company's average days to collect receivables is 18.25 days.

    Explanation:

    For computing the company's average days to collect receivables, first we have to calculate the account receivable turnover ratio. The formula is shown below

    Account Receivable Turnover ratio = Net credit Sales : Average accounts receivable

    where,

    Net credit sales is given

    And, the average accounts receivable = (Year 1 + Year 2) : 2

    = ($15,000 + $12,000) : 2

    = $13,500

    So, Account Receivable Turnover ratio = $270,000 : $13,500 = 20

    Now, average days to collect receivables = Number of days in a year : Account Receivable Turnover ratio

    = 365 : 20

    = 18.25 days

    Hence, the company's average days to collect receivables is 18.25 days.
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