Question

Xenox Company had net credit sales during the year of $1300000 and cost of goods sold of $800000. The balance in accounts receivable at the beginning of the year was $185000, and the end of the year it was $140000. What was the accounts receivable turnover?

Answer 1

8 times

Step-by-step explanation:

Financial Statements depicts the financial position of a firm at a particular point of time or specified date. The users of financial statements use various types of analysis to understand or compare the current financial statements of the company to prior years or with those of the competitors.

‘Ratio Analysis’ is used to analyze the performance of a company. It is used to analyze the liquidity, profitability, solvency and operational efficiency of the company.

Given:

Net credit sales = $1,300,000

Beginning accounts receivable = $185,000

Ending accounts receivable = $140,000

Accounts receivable turnover is the ratio of net credit sales to average accounts receivable.

It can be calculated as:

Average accounts receivable =
`(Beginning accounts receivable + Ending accounts receivable)/(2)`

Average accounts receivable =
`(185,000 + 140,000)/(2)`

Average accounts receivable =
`(325,000)/(2)`

Average accounts receivable = $162,500

Accounts turnover ratio =
`(Net credit sales)/(Average accounts receivable)`

Accounts turnover ratio =
`(1,300,000)/(162,500)`

Accounts turnover ratio = 8 times