Question

Use the following information for que stions 2 and 3: For its most recent year a company had Sales (all on credit) of $830,000 and Cost of Goods Sold $525,000. At the beginning of the year its Accounts Receivable was $80,000 and its Inventory $100,000. At the end of the year its Accounts Receivable was S86,000 and its Inventery $110,000. On average how many days of sales were in Inventory during the year? On average how many days of sales were in Accounts Receivable during the year?

Answer 1

Given:

Sales = $ 830,000

Cost Of Goods Sold = $ 525,000

Opening Balances:

Accounts Receivables = $ 80,000 And Inventory = $ 100,000

Closing Balances:

Account Receivables = $ 86,000 And Inventory = $ 105,000

Answer:

Average Account Receivables = (80,000+86,000)/2 = $ 83000

Average Inventory = (100,000+105,000)/2 = $ 102,500

Therefore,

A) No of Days sales was in Inventory (Stock Turnover Ratio) = (Average Inventory/Cost Of Goods Sold)*365 Days

No of Days sales was in Inventory (Stock Turnover Ratio) = (105,000/525,000)*365 = 73 Days

B) No of Days sales was in Accounts Receivables (Debtors Turnover Ratio) = (Avg Account Receivables/Sales)*365 Days

No of Days sales was in Accounts Receivables (Debtors Turnover Ratio) = (83000/830000)*365 Says = 36.5 Days.