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Managing Receivables

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Use these data to compute accounts receivable turnover ratios and average collection periods for 2005 and 2006. Based on your analysis, is Hickory Company managing its receivables better or worse in 2006 than it did in 2005?

Assume that Hickory Company has the following data related to its accounts receivable:

2005 2006
Net Sales $1,425,000 $1,650,000
Net recievables:
Beginning of year $375,000 $333,500
End of year $420,000 $375,000

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Solution Summary

The solution explains how to calculate accounts receivable turnover and average collection period and make a judgment on the efficiency of receivables management.

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Accounts Receivable Turnover = Net Sales/Average Receivables
Average Collection Period = Average Receivables/Per Day Sales
Average Receivables = (Opening Receivables + Closing Receivables)/2
For 2005, Average Receivables ...

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