The following account balances are taken from Ferguson Sports at December 31.?Year 2Year 1Accounts receivable18,02023,450Net sales163,500157,100Calculate the number of days' sales uncollected for both years. According to this analysis, is the company's collection of receivables improving? Explain.
What will be an ideal response?
Days' Sales Uncollected Ratio = Ending Accounts Receivable/Net Sales * 365
Year 1: $23,450/$157,100 * 365 = 54.5 days
Year 2: $18,020/$163,500 * 365 = 40.2 days
Yes, there are 14.3 fewer days in the days' sales uncollected which means the company is doing a better job collecting the receivables. Sales have increased slightly at the same time. This indicates improvement in both the company's ability to collect receivables and the overall financial health of the company.
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