A company reports the following results in its financial statements: ??Year 3Year 2Year 1Net Sales…………….………………….?$2,500,000 $2,100,000 $1,900,000Accounts receivable, Ending Balance…?172,000167,000165,000Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these two results and give a possible explanation for any significant change.
What will be an ideal response?
Year 2: Accounts receivable turnover:
$2,100,000/[($165,000+$167,000) / 2] = 12.7 times
Year 3: Accounts receivable turnover:
$2,500,000/[($167,000+$172,000) / 2] = 14.7 times
The company's accounts receivable turnover has increased from 12.7 in Year 2 to 14.7 in Year 3. This increase in accounts receivable turnover may indicate that the company has tightened its credit policy or that it has improved on its collection efforts regarding receivables.
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