Questions: Selected information taken from the accounting records of XYZ Company follows: Net accounts receivable at December 31, 20X0 900,000 Net accounts receivable at December 31, 20X1 1,000,000 Accounts receivable turnover 5 to 1 Inventories at December 31, 20X0 1,100,000 Inventories at December 31, 20X1 1,200,000 Inventory turnover 4 to 1 Suppose that there are 360 business days in the year. What were the number of days sales outstanding in average receivables for 20X1?

Solution Steps

To find the number of days sales outstanding (DSO) in average receivables for 20X1, we need to follow these steps:

1. Calculate the average accounts receivable for 20X1.
2. Use the accounts receivable turnover ratio to find the total sales for 20X1.
3. Calculate the DSO by dividing the average accounts receivable by the total sales per day.

The average accounts receivable for 20X1 is calculated as follows:

\[ \text{Average AR} = \frac{\text{Net AR}_{20X0} + \text{Net AR}_{20X1}}{2} = \frac{900,000 + 1,000,000}{2} = 950,000 \]

Using the accounts receivable turnover ratio, the total sales for 20X1 can be determined:

\[ \text{Total Sales} = \text{AR Turnover} \times \text{Average AR} = 5 \times 950,000 = 4,750,000 \]

To find the sales per day, we divide the total sales by the number of business days:

\[ \text{Sales Per Day} = \frac{\text{Total Sales}}{\text{Business Days}} = \frac{4,750,000}{360} \approx 13,194.4444 \]

Finally, the DSO is calculated by dividing the average accounts receivable by the sales per day:

\[ \text{DSO} = \frac{\text{Average AR}}{\text{Sales Per Day}} = \frac{950,000}{13,194.4444} \approx 72 \]

Final Answer