Days’ sales uncollected: This ratio defines how fast a company converts its receivable into known amounts of cash. The lesser the ratio is, the better it is for the company as it will prove that the company employs an efficient system of cash collection from customers. Requirement 1 To compute: The days’ sales uncollected for both the current and prior year for two companies A and G.

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Answer 1

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Chapter 6, Problem 2.1AA

a.

To determine

Days’ sales uncollected:

This ratio defines how fast a company converts its receivable into known amounts of cash. The lesser the ratio is, the better it is for the company as it will prove that the company employs an efficient system of cash collection from customers.

Requirement 1

To compute:

The days’ sales uncollected for both the current and prior year for two companies A and G.

b.

To determine

Changes in Days’ sales uncollected:

The changes in the ratio of days’ sales uncollected will greatly impact the liquidity problem of the entity. If it is reduced, the company is considered to be efficiently managing its cash collection mechanism or in case, it is increased, the otherwise will follow.

Requirement 2

Which company had been better at collecting receivables?

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