A company reported net sales for 2014 of $265,000 and $545,000 for 2015. The year-end balances of accounts receivable were $39,000 for 2014 and $92,000 for 2015. Calculate the days' sales uncollected at the end of each year for this company and describe any changes in the apparent liquidity of the company's receivables.
What will be an ideal response?
Days' Sales Uncollected Ratio = Ending Accounts Receivable/Net Credit Sales * 365
2014: ($39,000/$265,000) × 365 = 54 days
2015: ($92,000/$545,000) × 365 = 62 days
The increase of eight days means that this company is less effective in its management of receivables and its liquidity position in 2015 compared to 2014.
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