Edna is living in a retirement home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 22.5, by what percentage does Ednas cost of living increase between time 1 and time 2? Items Quantity (Time 1) Price (Time 2) Price Gifts for grandchildren 12 $50 $60 Pizza delivery 24 $15 $16 Blouses 6 $60 $50 Vacation trips 2 $400 $420 Table 22.5
Tuesday, October 18 , 2016 We will see some relevant/often used Ratios related to Accounts Receivable: Example: Income Statement For the year ended 12/31/16 Sales 400,000 Sales Discounts 35,000 Net Sales 365,000 Balance Sheet As at 12/31/16 ASSETS Current Assets 2016 2015 A/R 160,000 100,000 Less AFDA 40,000 20,000 1 Net A/R $ 120,000 $ 80,000 GAAP says: management has to estimate the amount of uncollectables. 2 important ratios: 2 • Accounts Receivable Turnover = Net Credit Sales / Average Net Accounts Receivable 3 Example: Accounts Receivable Turnover = 365,000/100,000 = 3.65 In general, we want an upward trend of A/R Turnover, because it indicates how many times during the year we reported and collected our claim to cash è we became more liquid more times. • Average Collection Period = 365 / Accounts Receivable Turnover Example: 365/3.65 = 100 days à it is the average duration for a credit sale to be collected. Is 100 days good> it depends, we can make comparisons: intra-analyses, inter- analysis, industry analysis. The smaller the average collection period is, the smaller the operating cycle is.