Calculating Days' Sales Uncollected for Freeman Co.
Understanding Days' Sales Uncollected
Days' Sales Uncollected, also known as the average collection period, measures the average number of days that a company takes to collect revenue after a sale has been made. It is a key metric that reflects the efficiency of a company's accounts receivable management and its ability to collect payments on time.
Calculation Formula
The formula to calculate the Days' Sales Uncollected is:
Days' Sales Uncollected = (Ending Accounts Receivable / Net Sales) x 365
Applying the Calculation to Freeman Co.
In the case of Freeman Co., the company had a net sales of $4.2 million and ending accounts receivable of $0.8 million. By plugging these values into the formula, we get:
((0.8 million / 4.2 million) x 365) = (0.190476 x 365) â 69.5 days
Therefore, the days' sales uncollected for Freeman Co. is approximately 69.5 days, confirming answer (D) as the correct choice.