The following account balances are taken from Everest Events at December 31.?20X220X1Accounts receivable$170,230$260,450Net sales1,500,7501,450,600Calculate 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
20X1: $260,450/$1,450,600 * 365 = 65.5 days
20X2: $170,230/$1,500,750 * 365 = 41.4 days
Yes, there are 24.1 fewer days in the days' sales uncollected which means the company is doing a much better job collecting the receivables. Sales have increased 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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