Question

A company has net sales of $1,680,000 and average accounts receivable of $420,000. What is its accounts receivable turnover for the period?

Answer 1

Accounts receivable’s turn over period is 4

Step-by-step explanation:

To compute accounts receivable turn over period, we simply divide NET CREDIT SALES over AVERAGE ACCOUNTS RECEIVABLE.

Accounts receivable ratio = Net credit sales / Average accounts receivable.

Accounts receivable turn over ratio = $1,680,000/$420,000

= 4 (correct answer)

*Net credit sales is derive by deducting sales returns and allowances from gross sales. If the problem is silent, we will assume that the given data of sales is all in credit and is net of cash sales.

The higher the turn over ratio of the receivable, the efficient the company handled their collection process. It will serve as a measurement on how well and effective they are in collecting their receivable.