Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 8 Receivables 371

Oct. 3, 2004 Sept. 28, 2003 Sept. 29, 2002

Net sales $5,294.2 $4,075.5 —

Net accounts receivable 140.2 114.4 $97.6

Accounts Receivable Turnover 

Net Sales

Average Accounts Receivable

$5,294.2



($140.2$114.4)/2

41.6

By computing the accounts receivable turnover for the prior year, shown below,
we can determine whether Starbucks’ management of accounts receivable has im-
proved.

Accounts Receivable Turnover 

Net Sales

Average Accounts Receivable

$4,075.5



($114.4$97.6)/2

38.5

The 2003 accounts receivable turnover for Starbucks is 38.5. Thus, Starbucks im-
proved its management of accounts receivable slightly during fiscal year 2004.
Thenumber of days’ sales in receivablesis an estimate of the length of time
the accounts receivable have been outstanding. With credit terms of 2/10, n/30, the
number of days’ sales in receivables should be less than 20 days. It is computed as
follows:

Number of Days’ Sales in Receivables

Average Accounts Receivable

Average Daily Sales

Average daily sales are determined by dividing net sales by 365 days. For example,
using the preceding data for Starbucks, the number of days’ sales in receivables is 8.8
days and 9.5 days for 2004 and 2003, as shown below.

2004 2003

Net sales $5,294.2 $4,075.5
Accounts receivable 140.2 114.4
Average accounts receivable 127.3 [($140.2 114.4)2] 106.0 [($114.4 $97.6)2]
Accounts receivable turnover 41.6 ($5,294.2$127.3) 38.5 ($4,075.5106)
Average daily sales 14.5 ($5,294.2365) 11.2 ($4,075.5365)
Days’ sales in receivables 8.8 ($127.314.5) 9.5 ($10611.2)

The number of days’ sales in receivables confirms the accounts receivable turnover
by declining slightly during 2004. Generally, this would be viewed as a favorable
trend. That is, the efficiency in collecting accounts receivable has improved when the
number of days’ sales in receivables decreases. However, these measures should also
be compared with similar companies within the industry. For example, Peet’s Coffee
and Tea Inc.is a specialty coffee roaster, wholesaler, and retailer. Peet’s reports an
accounts receivable turnover of 41.6 and 8.8 days’ sales in receivables. Thus, Peet’s ac-
counts receivable turnover and days’ sales in receivables are virtually identical to that
of Starbucks, indicating a very similar accounts receivable collection experience be-
tween the two companies.