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Accounts receivable turnover and days’ sales in receivables

For two recent years, Robinhood Company reported the following:

Line Item Description 20Y9 20Y8
Sales $7,788,000 $6,440,000
Accounts receivable:
Beginning of year 600,000 520,000
End of year 580,000 600,000
a. Determine the accounts receivable turnover for 20Y9 and 20Y8. Round your answers to one decimal place.

20Y8: fill in the blank 1 of 2

20Y9: fill in the blank 2 of 2

b. Determine the days’ sales in receivables for 20Y9 and 20Y8. Assume 365 days in a year. Round intermediate calculations and final answers to one decimal place.

20Y8: fill in the blank 1 of 2
days
20Y9: fill in the blank 2 of 2
days

c. Are the changes in the accounts receivable turnover and days’ sales in receivables from 20Y8 to 20Y9 favorable or unfavorable?

1 answer

To determine the accounts receivable turnover and days’ sales in receivables for Robinhood Company for the years 20Y8 and 20Y9, we can follow these formulas:

  1. Accounts Receivable Turnover = Sales / Average Accounts Receivable
  2. Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
  3. Days’ Sales in Receivables = 365 / Accounts Receivable Turnover

Let’s perform the calculations step by step.

a. Accounts Receivable Turnover:

  1. For 20Y8:

    • Sales = $6,440,000
    • Beginning Accounts Receivable = $520,000
    • End Accounts Receivable = $600,000
    • Average Accounts Receivable = (520,000 + 600,000) / 2 = $560,000
    • Accounts Receivable Turnover = $6,440,000 / $560,000 = 11.5 (rounded to one decimal place)

  2. For 20Y9:

    • Sales = $7,788,000
    • Beginning Accounts Receivable = $600,000
    • End Accounts Receivable = $580,000
    • Average Accounts Receivable = (600,000 + 580,000) / 2 = $590,000
    • Accounts Receivable Turnover = $7,788,000 / $590,000 = 13.2 (rounded to one decimal place)

Answers for part a:

  • 20Y8: 11.5
  • 20Y9: 13.2

b. Days’ Sales in Receivables:

  1. For 20Y8:

    • Days’ Sales in Receivables = 365 / 11.5 = 31.7 days (rounded to one decimal place)

  2. For 20Y9:

    • Days’ Sales in Receivables = 365 / 13.2 = 27.6 days (rounded to one decimal place)

Answers for part b:

  • 20Y8: 31.7 days
  • 20Y9: 27.6 days

c. Favorability of Changes:

  • The accounts receivable turnover increased from 11.5 in 20Y8 to 13.2 in 20Y9. This indicates that the company is collecting its receivables more quickly, which is favorable.
  • The days’ sales in receivables decreased from 31.7 days in 20Y8 to 27.6 days in 20Y9. A lower number of days indicates that the company is able to collect its receivables faster, which is also favorable.

Thus, both the changes in the accounts receivable turnover and the days’ sales in receivables from 20Y8 to 20Y9 are favorable.