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# Transactions and Financial Statements

The president of Castle Enterprises Ltd., Nicole Castle, is considering the impact that certain transactions have on its receivables turnover and average collection period ratios. Prior to the following transactions, Castle's receivables turnover was 6 times, and its average collection period was 61 days.

See attached file for the table.

Instructions:
Complete the table, indicating whether each transaction will increase (I), decrease (D), or have no effect (NE) on the ratios.
Nicole was reading through the financial statements for some publicly traded companies and noticed that they had recorded a loss on sale of receivables. She would like you to explain why companies sell their receivables

#### Solution Preview

Receivable turnover ratio= Net Credits Sales/ Average receivables
Average Collection period= 365/Receivable turnover ratio

1. Recorded sales on account \$100,000

There is an increase in receivables. The receivable turnover will reduce and average collection period will increase.

Hence
Receivable turnover ratio- D
Average Collection period- I

2. Collected \$25,000 owing from customers.

There is a decrease in receivables. The receivable turnover will increase and average collection ...

#### Solution Summary

This solution answers various questions regarding transactions and financial statements.

\$2.19