When calculating days inventory, the average inventory level is compared with the cost of sales When calculating days debtors, the average accounts receivable balance is compared with the sales revenue Explain why the former ratio uses cost of sales whereas the latter uses sales revenue ...

The purpose of ratio analysis is to express a relationship between two relevant items that is easy t ...

When calculating days inventory, the average inventory level is compared with the cost of sales. When calculating

Question:

When calculating days inventory, the average inventory level is compared with the cost of sales. When calculating days debtors, the average balance is compared with the sales revenue. Explain why the former ratio uses cost of sales whereas the latter uses sales revenue.
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...