Chapter 6, Problem 6.7.2MBA

To determine

Concept Introduction:

Accounts receivable turnover ratio:

This is an efficiency ratio that indicates the conversion of accounts receivable into cash. This ratio is calculated by dividing the Net credit Sales by the Average accounts receivable. The formula to calculate this ratio is as follows:

  $Accountsreceivableturnoverratio= \frac{NetcreditSales}{Averageaccountsreceivable}$

Days Sales in receivable ratio:

This is an efficiency ratio that indicates the period for which credit sales remain as receivable. The ratio is calculated by dividing 365 days by the Accounts receivable turnover ratio. The formula to calculate this ratio is as follows:

  $DaysSalesinreceivableratio=\frac{365}{Accountsreceivableturnoverratio}$

To Calculate:

The Days Sales in receivables for years 1 and 2