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FNT1_Chap14 (1) - Horngren Mozilla Firefox file Edit flew...

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Unformatted text preview: ': Horngren - Mozilla Firefox file Edit flew Higtory fiookmarks Iools flelp lil'nf‘ e x m e la http1#wpscmsbearsoncmg.comiwpsimediaiobjectsfsT16I6877765ihha08_f|ash_main.html?chapter=null&page=745&anchory=nul|&pstart=null&fin ' .3 v: 779923 '.'Vti'[email protected] Emmsmciwab wimp-65E 1E umexetwéliiéxmmvememm Q I [j Horngren Horngrefl Accounting, 8th edition Cu nte nts } Greg’s receivable turnover of 8.6 times per year is much slower than the indus~ try average of 29.1. Why the cliFference? Greg‘s is a fairly new business that sells to established people who pay their accounts over time. Further, this turnover coin— cidES With the lower than average inventory turnover. So, Greg‘s may achieve a higher receivable turnover by increasing its inventory turnover ratio. Days‘ Sales in Receivables The days'-saies—in~receivables ratio also measures the ability to collect receivables. Dag/3’ sales in receivables tell us how many days’ sales remain in Accounts receivable. To compute the ratio, we can follow a logical two—step process: 1. Divide net sales by 365 clays to Figure average sales for one clay. 2. Divide this average day‘s sales amount into average net accounts receivable. The data to compute this ratio for Greg’s Groovy Tunes for 2012 are taken from the income statement and the balance sheet {Exhibit 14—8): Greg’s Groovy Tunes’ Day's’ Sales in Industry Formula Accounts Receivable Average Days’ sales in average Accounts receivable: , Net sales 5858.000 # 1. One day 5 sales — 365 days 365 days — $2.35] D , l , Average net 2 ays 5a es mt _ accounts receivable $99,500 .. 42 da 5 25. . average accmm s — —One day’s sales —$2’351 — y. . receivable ale coma _ . . F'|"-'i ...
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