Question

Parr Hardware Store had net credit sales of $6.5mil and cost of goods sold of $5mil for the year. The Accounts Receivable balances at the beginning and end of the year were $600k and $700k, respectively. The receivables turnover was

Answer 1

Accounts Receivables Turnover Ratio =
`(6,500,000)/(650,000)` = 10 times.

Step-by-step explanation:

Accounts Receivables Turnover ratio =
`(Net \:Credit \: Sales)/(Average \: Receivables)`

Here Net Credit Sales = $6.5 million

Accounts Receivables Opening Balance = $600,000

Accounts Receivables Closing Balance = $700,000

Average Accounts Receivable Balance =
`(600,000 \:+ 700,000)/(2) = 650,000`

Accounts Receivables Turnover Ratio =
`(6,500,000)/(650,000)` = 10 times.

This shows that accounts receivables are on an average 1/10th of credit sales.

Final Answer

Accounts Receivables Turnover Ratio =
`(6,500,000)/(650,000)` = 10 times.