Learning Objective 8: Describe and illustrate the use of accounts receivable turnover and number of days' sales in receivables to evaluate a company's efficiency in collecting its receivables. a) How would you calculate the accounts receivable turnover and identify a favorable or unfavorable change? b) How do you calculate the number of days' sales in receivables and if a change should be classified as favorable or unfavorable? Fill-in-the-Blank Equations 1. Accounts receivable - Allowance for doubtful accounts = 2. After the adjusting entry is recorded, Allowance for Doubtful Accounts should always have a balance 3. Interest = * Interest rate * (Term/360 days) 4. = Face amount + Interest 5. Accounts receivable turnover = Sales/ 6. Number of days' sales in receivables = Average accounts receivable/ Exercises 1. ToolBox Co. sells a large piece of equipment to another company on November 6, 2015. ToolBox Co. receives a down payment of $1,000 on the date of sale and will receive a $400 monthly payment on the 15th of every month, beginning in January of the following year, for five years. What type of receivable will ToolBox Co. record? Will the receivable be classified as current or noncurrent? 2. Bon Firewood sells products to customers at a markup of its original cost. Customers typically pay on account, but large customers are allowed to receive the products and pay the amount owed within 30 days. What type of receivable will Bon b) How do you calculate the number of days' sales in receivables and if a change should be classified as favorable or unfavorable? Fl-in-the-Blank Equations 1. Accounts receivable - Allowance for doubtful accounts = 2. After the adjusting entry is recorded, Allowance for Doubtful Accounts should always have a balance 3. Interest = * Interest rate * (Term/360 days) 4. = Face amount + Interest 5. Accounts receivable turnover = Sales/ 6. Number of days' sales in receivables = Average accounts receivable/ = Exercises 1. ToolBox Co. sells a large piece of equipment to another company on November 6, 2015. ToolBox Co. receives a down payment of $1,000 on the date of sale and will receive a $400 monthly payment on the 15th of every month, beginning in January of the following year, for five years. What type of receivable will ToolBox Co. record? Will the receivable be classified as current or noncurrent? 2. Bon Firewood sells products to customers at a markup of its original cost. Customers typically pay on account, but large customers are allowed to receive the products and pay the amount owed within 30 days. What type of receivable will Bon Firewood record for these customers? How will the receivable be classified on the balance sheet? 3. In August, Bon Firewood takes advantage of an opportunity to earn income on excess cash, which requires a $15,000 investment. The investment will pay interest annually every March, beginning in the upcoming year. What type of receivable will Bon Firewood record for the interest owed in March? How will the receivable be classified on the balance sheet
