A.

a) From the textbook we got to know, the account receivable turnover ratio = Net credit sales/
Average accounts receivable.
The average accounts receivable = (Beginning accounts receivable + Ending accounts
receivable) / 2 (Franklin et al., 2020).
ABC Group,
Net credit sales = $324,000
The average accounts receivable for the ABC group is,
($75,000 + $125,000) / 2 = $100,000
The account receivable turnover ratio is, $324,000 / $100,000 = 3.24
123 Company,
Net credit sales = $401,000
The average accounts receivable for the 123 Company is,
($92,000 + $123,000) / 2 = $107,500
The account receivable turnover ratio is, $401,000 / $107,500 = 3.73

b) In order to calculate the number of days’ sales in receivables ratio, the equation is, Number
of days’ sales in receivables ratio = (365 / Accounts receivable turnover ratio) (Franklin et al.,
2020).
The number of days’ sales in receivables ratio for ABC group is,
(365 / 3.24)= 112.65
The number of days’ sales in receivables ratio for 123 Company is,
(365/3.73)= 97.86

c) The number of times accounts receivable are collected and turned into cash is known as the
accounts receivable turnover ratio (Franklin et al., 2020). A higher accounts receivable
turnover ratio shows that the business is collecting receivables more quickly. I would invest
in 123 Company after analyzing the results. In comparison to ABC Group, 123 Company has
a greater accounts receivable turnover ratio. According to the calculations, 123 Company
has a greater turnover ratio and fewer days' sales in receivables than ABC Group. This
means 123 Company collects its receivables faster, making it a better investment choice in
terms of effective cash flow management.

B. We know that, the inventory turnover ratio = Cost of goods sold / Average inventory. The
average inventory = (Beginning inventory + Ending inventory) / 2 (Franklin et al., 2020).

Year 1:
Cost of goods sold = $28,174
Average inventory = ($29,000 + $10,826) / 2 = $19,913
Inventory turnover ratio = $28,174 / $19,913 = 1.41
 Year 2:
Cost of goods sold = $10,826
Average inventory = ($10,826 + $5,980) / 2 = $8,403
Inventory turnover ratio = $12,281 / $8,403 = 1.46

The inventory turnover ratio represents the frequency with which a company sells or
replenishes its inventory within a specific timeframe (Franklin et al., 2020). A higher inventory
turnover ratio suggests that the company has experienced increased sales or has efficiently
managed its inventory to meet demand. Conversely, a lower turnover ratio indicates weaker
sales or challenges in meeting customer demand. In Year 1, the company achieved an inventory
turnover ratio of 1.41, which subsequently increased to 1.46 in Year 2. This rise in the turnover
ratio signifies an improvement in the company's sales performance and indicates positive
growth in sales.

C. We know, the number of days’ sales in inventory ratio = average inventory / average daily cost
of goods sold.
The average inventory = (Beginning inventory + Ending inventory) / 2 (Franklin et al., 2020).
The average daily cost of goods sold = Cost of goods sold / 365.

Year 1:
Cost of goods sold = $28,174
Average inventory = ($29,000 + $10,826) / 2 = $19,913
Average daily cost of goods sold = $28,174 / 365 = 77.19
Number of days’ sales in inventory ratio = $19,913 / 77.19 = 257.97

Year 2:
Cost of goods sold = $10,826
Average inventory = ($10,826 + $5,980) /2 = $8,403
Average daily cost of goods sold = $12,281 / 365 = 33.65
Number of days’ sales in inventory ratio = $8,403 /33.65 = 249.72

The results indicate a concerning increase in the number of days' sales in inventory ratio in Year
2. This suggests that it is taking longer to sell the inventory, which is a negative trend for the
company. In order to address this issue, management may consider reducing the inventory
balance or alternatively, intensifying sales efforts to improve the ratio and shift it towards a
more positive trend. Franklin et al. (2020) propose these potential strategies to address the
situation (p. 676).

2. In chart 1 the analysis of the outcomes reveals that 123 Company outperforms the ABC Group
in terms of both the accounts receivable turnover ratio and the number of days' sales in
receivables ratio. These ratios indicate that 123 Company collects its accounts receivable at a
faster pace compared to the ABC Group, indicating better financial management. On the other
hand, when examining the results from Chart 2, it becomes apparent that the company faced
challenges in Year 2. The inventory turnover ratio decreased, suggesting a decline in sales, while
the number of days' sales in inventory ratio increased, indicating a longer period of time
required to sell the inventory. These trends indicate that the company experienced difficulties in
Year 2, likely due to decreased sales and potential inventory management issues

3. Completing this task was a smooth and enjoyable experience for me, as I did not encounter
any difficulties along the way. With the assistance of the textbook, I was able to easily locate the
necessary ratios and equations required for the calculations. The availability of theoretical
information in the textbook proved to be beneficial in understanding the concepts and
principles underlying the financial ratios. Overall, I found this task to be both fun and relatively
easy, thanks to the guidance provided by the textbook

4. I've reached the midpoint of the course, and it feels like time has flown by quickly. I'm
thoroughly enjoying the course and finding it immensely valuable. Although there are numerous
formulas to remember, I feel confident in my ability to grasp and apply them effectively. This
practical application makes it easier to comprehend the material and helps the accounting
formulas stick in my memory. The topics covered so far have been highly informative and
essential for a comprehensive understanding of business, considering the significant role
accounting plays in this field of study.

Franklin, M. Graybeal, P. & Cooper, D. (2020). Principles of accounting, volume 1: Financial

accounting. OpenStax Rice University. https://openstax.org/details/books/principlesfinancial-
accounting