Chapter 9, Problem 2AA

Requirement-1:

To determine

To calculate:

The Accounts receivable turnover ratio for Apple and Google for the two most recent years:

Answer to Problem 2AA

The Accounts receivable turnover ratio for Apple and Google for the two most recent years is as follows:

	Apple		Google
$ Millions	Current Year	One Year Prior	Current Year	One Year Prior
Accounts Receivable Turnover Ratio	13.63	13.23	6.83	7.03

Explanation of Solution

The Accounts receivable turnover ratio for Apple and Google for the two most recent years is explained as follows:

	Apple		Google
$ Millions	Current Year	One Year Prior	Current Year	One Year Prior
Net Credit Sales (A)	$ 229,234	$ 215,639	$ 110,855	$ 90,272
Beginning Accounts Receivable (B)	$ 15,754	$ 16,849	$ 14,137	$ 11,556
Ending Accounts Receivable (C)	$ 17,874	$ 15,754	$ 18,336	$ 14,137
Average Accounts Receivable (D) = (B+C)/2	$ 16,814	$ 16,302	$ 16,237	$ 12,847
Accounts Receivable Turnover Ratio (E) = A/D	13.63	13.23	6.83	7.03

To determine

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 uncollected:

This is an efficiency ratio that indicates the period for which credit sales remain as receivable. The ratio is calculated by multiplying Accounts receivable with 365 days and dividing the result by Net Sales. The formula for Days Sales uncollected is as follows:

  $DaysSalesuncollected=\frac{AccountsReceivable*365}{NetSales}$

Requirement-2:

To calculate:

Number of days it takes to collect receivable for Apple and Google for the two most recent years:

Answer to Problem 2AA

Number of days it takes to collect receivable for Apple and Google for the two most recent years are as follows:

	Apple		Google
$ Millions	Current Year	One Year Prior	Current Year	One Year Prior
Days Sales Uncollected	26.77	27.59	53.46	51.94

Explanation of Solution

Number of days it takes to collect receivable for Apple and Google for the two most recent years are explained as follows:

	Apple		Google
$ Millions	Current Year	One Year Prior	Current Year	One Year Prior
Net Credit Sales (A)	$ 229,234	$ 215,639	$ 110,855	$ 90,272
Beginning Accounts Receivable (B)	$ 15,754	$ 16,849	$ 14,137	$ 11,556
Ending Accounts Receivable (C)	$ 17,874	$ 15,754	$ 18,336	$ 14,137
Average Accounts Receivable (D) = (B+C)/2	$ 16,814	$ 16,302	$ 16,237	$ 12,847
Accounts Receivable Turnover Ratio (E) = A/D	13.63	13.23	6.83	7.03
Days Sales Uncollected (365/E)	26.77	27.59	53.46	51.94

To determine

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 uncollected:

This is an efficiency ratio that indicates the period for which credit sales remain as receivable. The ratio is calculated by multiplying Accounts receivable with 365 days and dividing the result by Net Sales. The formula for Days Sales uncollected is as follows:

  $DaysSalesuncollected=\frac{AccountsReceivable*365}{NetSales}$

Requirement-3:

To Identify:

The company which collects its receivables more early in the current year

Answer to Problem 2AA

Apple collects its receivables more early in the current year.

Explanation of Solution

Number of days it takes to collect receivable for Apple and Google for the current years is as follows:

	Apple	Google
$ Millions	Current Year	Current Year
Net Credit Sales (A)	$ 229,234	$ 110,855
Beginning Accounts Receivable (B)	$ 15,754	$ 14,137
Ending Accounts Receivable (C)	$ 17,874	$ 18,336
Average Accounts Receivable (D) = (B+C)/2	$ 16,814	$ 16,237
Accounts Receivable Turnover Ratio (E) = A/D	13.63	6.83
Days Sales Uncollected (365/E)	26.77	53.46

The Days Sales Uncollected are lower for Apple, hence it can be said that Apple collects its receivables more early in the current year.