Comments
This is an opportunity to work with Accounts Receivable Turnover and, for future reference, Days in
Receivables.
Accounts receivable Turnover = Net Credit Sales / Average Accounts receivable
Days Accounts receivable outstanding = Days in receivables = 365 / Accounts Receivable Turnover
As with our discussion of inventory, the financial statements are an aggregation across all types of
customers that have varying credit terms. Some customers are cash, some have short credit terms,
some have more generous credit terms.
If the problem separates out cash sales from credit sales, it's probably more informative to use only the
credit sales in the turnover measure. Nevertheless, always go with the information given. If the problem
does not separate the sales into credit and cash, then include all of the sales as credit. In a sense, the
resulting average will be a little low because the cash sales are instant collections.
Problem statement
E6-3
Determining receivable
turnover (LO 6-3)
Utica Company's net accounts receivable was $250,000 at December 31, 20X0, and $300,000
at December 31, 20X1. Net cash sales for 20X1 were $100,000. The accounts receivable turn-
over for 20X1 was 5.0, which was computed from net credit sales for the year.
Required
1. Find the Accounts Receivable Turnover.
2. Find the Days in Receivables.
