# Explain the statement presentation and analysis of

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Explain the statement presentation and analysis of receivables. S T U D Y O B J E C T I V E 9 Illustration 9-15 Accounts receivable turnover ratio and computation Net Credit Sales H11548 Average Net H11549 Accounts Receivable Accounts Receivable Turnover \$29,462 H11004 \$3,303 H11001 2 \$3,989 H11005 8.1 times Illustration 9-16 Average collection period for receivables formula and computation Days in Year H11548 Accounts Receivable H11549 Average Collection Turnover Period in Days 365 days H11004 8.1 times H11005 45.1 days The result indicates an accounts receivable turnover ratio of 8.1 times per year. The higher the turnover ratio the more liquid the company’s receivables. A variant of the accounts receivable turnover ratio that makes the liquidity even more evident is its conversion into an average collection period in terms of days.This is done by dividing the turnover ratio into 365 days. For example, Cisco’s turnover of 8.1 times is divided into 365 days, as shown in Illustration 9-16, to ob- tain approximately 45.1 days.This means that it takes Cisco about 45 days to collect its accounts receivable. PDF Watermark Remover DEMO : Purchase from to remove the watermark

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Statement Presentation and Analysis 415 Be sure to read ALL ABOUT YOU: Should You Be Carrying Plastic? on page 416 for information on how topics in this chapter apply to your per- sonal life. * DO IT! ANALYSIS OF RECEIVABLES The Navigator a19 action plan a20 Review the formula to compute the accounts receivable turnover. a20 Make sure that both the beginning and ending accounts receivable balances are considered in the computation. a20 Review the formula to compute the average collection period in days. In 2010, Lebron James Company has net credit sales of \$923,795 for the year. It had a beginning accounts receivable (net) balance of \$38,275 and an ending accounts receivable (net) balance of \$35,988. Compute Lebron James Company’s (a) ac- counts receivable turnover and (b) average collection period in days. Solution (a) Companies frequently use the average collection period to assess the effec- tiveness of a company’s credit and collection policies. The general rule is that the collection period should not greatly exceed the credit term period (that is, the time allowed for payment). Net credit sales H11004 Average net H11005 Accounts receivable accounts receivable turnover \$923,795 H11004 38,275 + 35,988 H11005 24.9 times 2 (b) Days in year H11004 Accounts receivable H11005 Average collection turnover period in days 365 H11004 24.9 times H11005 14.7 days Related exercise material: BE9-12, E9-14 and DO IT! 9-4. PDF Watermark Remover DEMO : Purchase from to remove the watermark
Some Facts * * About 70% of undergraduates at 4-year colleges carry at least one credit card in their own name. Approximately 22% of college students got their first credit cards in high school.

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