To find the accounts receivable turnover ratio and the days sales outstanding (DSO), we can use the following formulas:
A) Accounts Receivable Turnover Ratio
The formula for the Accounts Receivable Turnover Ratio is:
\[ \text{Accounts Receivable Turnover Ratio} = \frac{\text{Credit Sales}}{\text{Average Accounts Receivable}} \]
Step 1: Calculate Average Accounts Receivable
Average Accounts Receivable can be calculated as:
\[ \text{Average Accounts Receivable} = \frac{\text{Accounts Receivable at the beginning} + \text{Accounts Receivable at the end}}{2} \]
Given:
- Accounts Receivable on January 1 = K4,000
- Accounts Receivable on December 31 = K8,000
Now, calculate the average:
\[ \text{Average Accounts Receivable} = \frac{4,000 + 8,000}{2} = \frac{12,000}{2} = K6,000 \]
Step 2: Calculate Accounts Receivable Turnover Ratio
Now we can find the turnover ratio using the credit sales of K84,000:
\[ \text{Accounts Receivable Turnover Ratio} = \frac{84,000}{6,000} = 14 \]
B) Days Sales Outstanding (DSO)
The formula for Days Sales Outstanding is:
\[ \text{DSO} = \frac{365}{\text{Accounts Receivable Turnover Ratio}} \]
So we can plug the turnover ratio into the formula:
\[ \text{DSO} = \frac{365}{14} \approx 26.07 \]
Summary:
A) Accounts Receivable Turnover Ratio: 14
B) Days Sales Outstanding (DSO): Approximately 26.07 days.