A company reported net sales for Year 1 of $265,000 and $545,000 for Year 2. The year-end balances of accounts receivable were $39,000 for Year 1 and $92,000 for Year 2. 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
Year 1: ($39,000/$265,000) × 365 = 54 days
Year 2: ($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 Year 2 compared to Year 1.
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