Question

The following information is from the annual financial statements of Raheem Company. Compute its accounts receivableturnover for 2016 and 2017. Compare the two years’ results and give a possible explanation for any change (competitorsaverage a turnover of 11).20 1 7 201 6 2015Netsales $405,140 $335,280 $388,000Accounts receivable, net (year-end) . . . . . . . . . . . . . 44,800 41,400 34,800

Answer 1

9.32 times and 9.40 times

Step-by-step explanation:

The computation of the account receivable ratio for both years are shown below:

For 2016

Accounts receivable turnover ratio

= Credit sales ÷ average accounts receivable

where,

Average accounts receivable = (Opening balance of Accounts receivable + ending balance of Accounts receivable) ÷ 2

= ($34,800 + $41,400) ÷ 2

= $38,100

And, the net credit sale is $335,280

Now put these values to the above formula

So, the answer would be equal to

= $355,280 ÷ $38,100

= 9.32 times

For 2017

Accounts receivable turnover ratio

= Credit sales ÷ average accounts receivable

where,

Average accounts receivable = (Opening balance of Accounts receivable + ending balance of Accounts receivable) ÷ 2

= ($41,400 + $44,800) ÷ 2

= $43,100

And, the net credit sale is $405,140

Now put these values to the above formula

So, the answer would be equal to

= $405,140 ÷ $43,100

= 9.40 times