A/R Analysis

Accounts Receivable Analysis (How credit is managed)

• A/R Turnover
  
• Number of Days Sales in A/R
  
• Estimate number of days of A/R to Cash
  

	2009	2008
Accounts Receivable, end of year	$222,466	$235,068
Monthly Average Accounts Receivable (net)	207,143	216,667
Net Sales	1,450,000	1,300,000

 

Terms of sales are 1/10 (1% discount, if paid within 10 days), and n/60 (net 60, net due within 60 days)

 

a) Determine for each year (1) The accounts receivable turnover and (2) the number of days sales in receivables.

 

b) What conclusions can be drawn from these data concerning accounts receivables and credit policies?

 

First: Accounts Receivable Turnover Formula

 

Net Sales divided by Average A/R

 

2009		2008
Net Sales	1,450,000	1,300,000
Div by Avg A/R	207,143	216,667
Total	7	6

 

That means the ratio of how much the A/R turnovers is 7 times a year

 

Second: Number of Days Sales in A/R

 

Accounts Receivable @ the End of the Year divided by Average Daily sales

 

2009		2008
A/R @ EOY	207,143	216,667
Div by Avg Daily A/R	(1,450,000/365) = 3,973	(1,300,000/365) = 3,562
Total	56 days	66 days