XYZ's receivables turnover is 10x. The accounts receivable at year-end are $600,000. The average collection period is 36 days. What was the sales figure for the year assuming all sales are on credit?
To find the sales figure for the year, we need to use the formula for receivables turnover:
Receivables turnover = Net Credit Sales / Average Accounts Receivable
First, we need to find the average accounts receivable:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Since we only have the ending accounts receivable, we will assume that the beginning accounts receivable is the same as the ending accounts receivable. Therefore:
Average Accounts Receivable = ($600,000 + $600,000) / 2 = $600,000
Now, we can rearrange the formula for receivables turnover to solve for net credit sales:
Net Credit Sales = Receivables turnover x Average Accounts Receivable
Net Credit Sales = 10 x $600,000 = $6,000,000
Therefore, the sales figure for the year, assuming all sales are on credit, is $6,000,000.
To calculate the sales figure for the year, you can use the receivables turnover ratio and the accounts receivable at year-end.
The receivables turnover ratio is calculated by dividing the net credit sales by the average accounts receivable. The formula for receivables turnover is:
Receivables Turnover = Net Credit Sales / Average Accounts Receivable
In this case, we can rearrange the formula to solve for net credit sales:
Net Credit Sales = Receivables Turnover * Average Accounts Receivable
Given that XYZ's receivables turnover is 10x and the accounts receivable at year-end is $600,000, we also need to determine the average accounts receivable.
The average collection period is given as 36 days. To calculate the average accounts receivable, we need to convert the average collection period from days to a fraction of the year. Assuming a 365-day year, the formula is:
Average Accounts Receivable = (Accounts Receivable at Year-end) * (Days in the Year / Average Collection Period)
Substituting the given values, we have:
Average Accounts Receivable = $600,000 * (365 days / 36 days)
With this information, we can calculate the sales figure for the year:
Net Credit Sales = 10x * $600,000
So, the sales figure for the year, assuming all sales are on credit, is:
Net Credit Sales = 10 * $600,000 = $6,000,000