[AMERICANDREAM]

Ok, idk why I’m not getting the answer.

Proposed JE:
Dr. COGS 90
Dr. AR 100
Cr. Sales 100
Cr. Inventory 90

Question: Would the above JE increase/decrease/no impact the days sales in AR?

I answered ‘decrease’, bcuz the formula is = (average AR/sales)*365.
The above JE would increase the denominator sales by 100, but increase the nominator AR by less than 100 because it’s average.

To illustrate a dramatic example, say the initial ratio is 365 days = (2/2)*365. The nominator is (2+2)/2.

The JE would make the nominator 54–> (2+2+100)/2. And would make sales 102 –> 2+100.
So the result is: (54)/(102), multiply this by 365 days..

[AMERICANDREAM]

bump…

[Missy]

I think something is missing like maybe the timing of the journal entry? The effect will be different if made at the beginning of the month vs the end of the month. Can you post the entire question?

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[AMERICANDREAM]

@mla11692

Thanks for your response. Here's the screenshot of the problem. All the listed, green answers are correct. I've circled in red the part I have question about:

This should be a simple question but I can't figure out what I'm doing wrong…

Thanks for your help!

[Missy]

https://books.google.com/books?id=UcJMKwvIIbUC&pg=PA664&lpg=PA664&dq=you+are+the+audit+manager+for+joes+office+supply&source=bl&ots=1Yjdo7wCuU&sig=MS1q95Igi4fIAXqAgrNa7oMVUGc&hl=en&sa=X&ved=0ahUKEwjGv8nbn7vTAhXi6YMKHY6CCmoQ6AEIHDAA#v=onepage&q=you%20are%20the%20audit%20manager%20for%20joes%20office%20supply&f=false

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[surelyshirley]

My thinking about this problem:

the formula is 365*（AR/sales）,mostly sales is bigger than account receivable, so let's assume the original formula is 365*(100/200) which equals to 365*0.5

After the journal entry, the new formula is 365*(200/300), which equals to 365*0.67

365*0.67 is greater than 365*0.5, so there is an increase.

[Author]

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