Task 2: Evaluate the company's efficiency in collecting its accounts receivable during the fiscal year ended 31 December 2021. Use the company's information from its annual reports: Receivables as of 31 December 2020 $4,468,392 Receivables as of 31 December 2021 $4,972,722 Sales revenue for year ended 31 December 2021 $45,349,943 1. Calculate the company's number of days of sales outstanding (DSO) for the fiscal year ended 31 December 2021. (Use the average receivables to calculate the ratio). = 2.37 Accounting receivable = Net Average Day's sales in receivable = 154. 2. Interpret the calculated ratio. 3. Assume that the industry average DSO ratio is 60 days. Based on this information and the subject company's DSO ratio, critically evaluate the company's credit policy and its implications.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Task 2:
Evaluate the company's efficiency in collecting its accounts receivable during the fiscal year ended 31
December 2021. Use the company's information from its annual reports:
Receivables as of 31 December 2020
Receivables as of 31 December 2021
$4,468,392
$4,972,722
$45,349,943
Sales revenue for year ended 31 December 2021
1. Calculate the company's number of days of sales outstanding (DSO) for the fiscal year ended 31
December 2021. (Use the average receivables to calculate the ratio).
Net
= 2.37
=
Accounting receivable:
Average
Day's sales in receivable = 154.
2. Interpret the calculated ratio.
3. Assume that the industry average DSO ratio is 60 days. Based on this information and the subject
company's DSO ratio, critically evaluate the company's credit policy and its implications.
Transcribed Image Text:Task 2: Evaluate the company's efficiency in collecting its accounts receivable during the fiscal year ended 31 December 2021. Use the company's information from its annual reports: Receivables as of 31 December 2020 Receivables as of 31 December 2021 $4,468,392 $4,972,722 $45,349,943 Sales revenue for year ended 31 December 2021 1. Calculate the company's number of days of sales outstanding (DSO) for the fiscal year ended 31 December 2021. (Use the average receivables to calculate the ratio). Net = 2.37 = Accounting receivable: Average Day's sales in receivable = 154. 2. Interpret the calculated ratio. 3. Assume that the industry average DSO ratio is 60 days. Based on this information and the subject company's DSO ratio, critically evaluate the company's credit policy and its implications.
Expert Solution
Step 1

 

Accounts Receivables turnover ratio means the number of times a company collects its average accounts receivable balance per year.  Accounts receivable turnover ratio is calculated by dividing your net credit sales by your average accounts receivable. The ratio is used to measure how effective a company is at extending credits and collecting debts. Generally, the higher the accounts receivable turnover ratio, the more efficient your business is at collecting credit from your customers.

Average collection period also known as Days of sales outstanding (DSO) is calculated by dividing number of days in a period by accounts receivables turnover ratio. DSO measures the number of days it takes for a business to collect cash from its customers. 

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