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Accounts Receivable Turnover and Days' Sales in Receivables

For two recent years, Robinhood Company reported the following:

\begin{tabular}{lrr}
& 20Y9 & \multicolumn{1}{c}{ 20Y8 } \\
\hline Sales & [tex]$\$[/tex] 8,107,000[tex]$ & $[/tex]\[tex]$ 6,612,000$[/tex] \\
Accounts receivable: & & \\
\multicolumn{1}{l}{ Beginning of year } & 610,000 & 530,000 \\
End of year & 600,000 & 610,000
\end{tabular}

a. Determine the accounts receivable turnover for 20Y9 and 20Y8. Round your answers to one decimal place.

20Y8: [tex]$\square$[/tex] [tex]$\square$[/tex]

20Y9: [tex]$\square$[/tex] 11.6

b. Determine the days' sales in receivables for 20Y9 and 20Y8. Assume 365 days in a year. Round intermediate calculations and final answers to one decimal place.

20Y8: [tex]$\square$[/tex] days

20Y9: [tex]$\square$[/tex] 25.0 days

c. Are the changes in the accounts receivable turnover and days' sales in receivables from 20Y8 to 20Y9 favorable or unfavorable?

Favorable [tex]$\checkmark$[/tex]



Answer :

GinnyAnswer
Let's go through the solution step-by-step:

### a. Determine the accounts receivable turnover for 20Y9 and 20Y8

1. Accounts Receivable Turnover Formula:
[tex]\[ \text{Accounts Receivable Turnover} = \frac{\text{Sales}}{\text{Average Accounts Receivable}} \][/tex]

2. Calculate the Average Accounts Receivable for each year:

- For 20Y8:
[tex]\[ \text{Average Accounts Receivable} = \frac{\text{Beginning of Year Accounts Receivable} + \text{End of Year Accounts Receivable}}{2} \][/tex]
[tex]\[ \text{Average Accounts Receivable (20Y8)} = \frac{\$530,000 + \$610,000}{2} = \$570,000 \][/tex]

- For 20Y9:
[tex]\[ \text{Average Accounts Receivable} = \frac{\text{Beginning of Year Accounts Receivable} + \text{End of Year Accounts Receivable}}{2} \][/tex]
[tex]\[ \text{Average Accounts Receivable (20Y9)} = \frac{\$610,000 + \$600,000}{2} = \$605,000 \][/tex]

3. Calculate the Accounts Receivable Turnover for each year:

- For 20Y8:
[tex]\[ \text{Accounts Receivable Turnover (20Y8)} = \frac{\$6,612,000}{\$570,000} = 11.6 \][/tex]

- For 20Y9:
[tex]\[ \text{Accounts Receivable Turnover (20Y9)} = \frac{\$8,107,000}{\$605,000} = 13.4 \][/tex]

So the answers for a. would be:

- 20Y8: 11.6
- 20Y9: 13.4

### b. Determine the days' sales in receivables for 20Y9 and 20Y8.

1. Days' Sales in Receivables Formula:
[tex]\[ \text{Days' Sales in Receivables} = \frac{365}{\text{Accounts Receivable Turnover}} \][/tex]

2. Calculate the Days' Sales in Receivables for each year:

- For 20Y8:
[tex]\[ \text{Days' Sales in Receivables (20Y8)} = \frac{365}{11.6} = 31.5 \text{ days} \][/tex]

- For 20Y9:
[tex]\[ \text{Days' Sales in Receivables (20Y9)} = \frac{365}{13.4} = 27.2 \text{ days} \][/tex]

So the answers for b. would be:

- 20Y8: 31.5 days
- 20Y9: 27.2 days

### c. Are the changes in the accounts receivable turnover and days' sales in receivables from 20Y8 to 20Y9 favorable or unfavorable?

- A higher Accounts Receivable Turnover is favorable because it indicates that the company is collecting its receivables more frequently.
- A lower Days' Sales in Receivables is also favorable because it indicates that the company is collecting its receivables faster.

From 20Y8 to 20Y9:

- Accounts Receivable Turnover increased from 11.6 to 13.4 (favorable)
- Days' Sales in Receivables decreased from 31.5 days to 27.2 days (favorable)

Thus, the changes are favorable.

So the answer for c. would be:

- Favorable ✔

To summarize:

[tex]\[ \begin{aligned} & \text{a. Accounts Receivable Turnover} \\ & \text{20Y8:} \quad 11.6 \\ & \text{20Y9:} \quad 13.4 \\ & \text{b. Days' Sales in Receivables} \\ & \text{20Y8:} \quad 31.5 \text{ days} \\ & \text{20Y9:} \quad 27.2 \text{ days} \\ & \text{c. Changes:} \\ & \text{Favorable} \checkmark \\ \end{aligned} \][/tex]

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