Chapter 6: Decision Analysis: Days’ Sales Uncollected

Days' Sales Uncollected: Days’ sales uncollected is a measure of how quickly a company can convert its accounts receivable into cash. It estimates the time, in days, it takes for a company to collect its receivables. This metric is important for assessing whether a company is collecting cash quickly enough to meet its financial obligations. Formula: Days’ Sales Uncollected=(Accounts ReceivableNet Sales)×365 days • • Accounts Receivable: The ending balance of accounts receivable. Net Sales: Total sales during the period, net of any discounts or returns. Example: In Exhibit 6.9, Starbucks has $879 million in accounts receivable and $26,509 million in net sales. Using the formula: Days’ Sales Uncollected=(87926,509)×365=12.1 days This means it takes Starbucks, on average, 12.1 days to collect its accounts receivable. Comparing this with Jack in the Box, which has 17.3 days' sales uncollected, Starbucks collects its receivables faster, indicating better liquidity and cash flow management. Improving Days’ Sales Uncollected: Sales staff can help reduce days’ sales uncollected by: 1. Promoting cash sales over credit sales. 2. Identifying and requiring earlier payments from delayed customers. 3. Eliminating credit sales to customers with poor payment histories. Bank Reconciliation Example: To reconcile Jamboree Enterprises’ book balance of cash ($16,380) with its bank statement balance ($38,520) for November 30, follow these steps: Information: • • Book balance: $16,380 Bank balance: $38,520 • • • • • • Outstanding checks: No. 2024 for $4,810, and No. 2026 for $5,000 Deposit in transit: $17,150 (not on the bank statement) Bank error: Check for $160 drawn against Jamboree by mistake Bank collected a $30,000 note and $900 interest NSF check: $1,100 from customer Marilyn Welch Bank service charges: $40 Bank Balance Adjustments: 1. 2. 3. 4. Bank balance: $38,520 Add deposit in transit: +$17,150 Subtract outstanding checks: -$4,810, -$5,000 Add bank error (wrong check drawn): +$160 Adjusted Bank Balance: $46,020 Book Balance Adjustments: 1. 2. 3. 4. 5. 6. Book balance: $16,380 Add note collected by the bank: +$30,000 Add interest earned: +$900 Subtract NSF check: -$1,100 Subtract bank service charges: -$40 Correct book error: The rent check was recorded at $880 instead of $1,000. Subtract the difference: -$120 Adjusted Book Balance: $46,020 Both adjusted balances now match at $46,020, completing the reconciliation. Journal Entries to Adjust Book Balance: 1. Record note collection and interest: plaintext Debit: Cash Credit: Notes Receivable Credit: Interest Revenue $30,900 $30,000 $900 2. Record NSF check: plaintext Debit: Accounts Receivable (Marilyn Welch) Credit: Cash 3. Record bank service charge: $1,100 $1,100 plaintext Debit: Bank Service Expense Credit: Cash $40 $40 4. Correct the book error for rent payment: plaintext Debit: Rent Expense Credit: Cash $120 $120 Voucher System of Control: A voucher system controls cash payments and helps prevent fraud. It involves a series of documents verifying that all steps of a transaction are properly authorized, ordered, and received before payment is made. The key documents in this system include: 1. Purchase Requisition: A department requests a purchase. 2. Purchase Order: The purchasing department places the order with a vendor. 3. Invoice: The vendor bills the company. 4. Receiving Report: The receiving department verifies the items received. 5. Invoice Approval: This checklist ensures the items requested were ordered, received, and priced correctly before payment is authorized. Each document is verified to control purchases, liabilities, and payments, reducing the risk of fraud unless collusion occurs. The voucher summarizes the transaction and authorizes the payment, which is later recorded in the accounting system.