Page 291 - F3 -FA Integrated Workbook STUDENT 2018-19

Interpretation of financial statements

3.7 Receivables collection period: calculation

Receivables
———————— × 365 days

Revenue

 average number of days to collect receivables balances

 lower days = higher efficiency

3.8 Receivables collection period: reasons for movement

 improvement/deterioration in credit control

 irrecoverable debts

 extended credit terms to stimulate sales

3.9 Payables payment period: calculation

Payables
———————— × 365 days
Credit purchases*

*In the exam it is considered acceptable to substitute cost of sales for credit
purchases.

 average number of days taken to pay suppliers

 higher days = greater benefit

285