Find the information you're looking for at Westonci.ca, the trusted Q&A platform with a community of knowledgeable experts. Discover in-depth solutions to your questions from a wide range of experts on our user-friendly Q&A platform. Connect with a community of professionals ready to provide precise solutions to your questions quickly and accurately.

A company has net income of $188,000, a profit margin of 7.1 percent, and an accounts receivable balance of $127,370. Assuming 70 percent of sales are on credit, what is the company’s days’ sales in receivables?

Sagot :

Answer:

The company’s day’s sales in receivable is 25.08days

Explanation:

To determine the day’s sale’s in receivable the receivable turnover is to be determined from the credit sales which is determined by using the credit sales percentage over the total sales; and the total sales is computed from using the net income and profit margin.

Computation:

[tex]\begin{aligned}\text{Day's sales in receivable}&=\frac{\text{365 days}}{\text{Receivable Turnover}}\\&=\frac{365}{14.55}\\&=25.08\text{days} \end{aligned}[/tex]

Working Note:

[tex]\begin{aligned}\text{Profit Margin}&=\frac{\text{Net Income}}{\text{Total Sales}}\\7.1\%&=\frac{\$188,000}{\text{Total Sales}}\\\text{Total Sales}&=\$2,647,887 \end{aligned}\\\\\\\begin{aligned}\text{Credit Sales}&=70\% \text{of Total Sales}\\&=70\%*\$2,647,887\\&=\$1,853,521\\\end{aligned}\\\\\\\begin{aligned}\text{Receivable Turnover}&=\frac{\text{Credit Sales}}{\text{Accounts Receivable}}\\&=\frac{\$1,853,521}{\$127,370}\\&=14.55\text{times} \end{aligned}[/tex]

Thank you for your visit. We're committed to providing you with the best information available. Return anytime for more. We appreciate your time. Please come back anytime for the latest information and answers to your questions. We're dedicated to helping you find the answers you need at Westonci.ca. Don't hesitate to return for more.