Question

If a company has current assets of $500,000, average accounts receivable of $80,000, total assets of $900,000, credit sales of $1,000,000, and cost of goods sold of $700,000, what is its accounts receivable turnover ratio?

Answer 1

The accounts receivable turnover ratio is found by dividing credit sales by average accounts receivable. For the provided figures, the accounts receivable turnover ratio is 12.5, which indicates the company collects its receivables 12.5 times per year.

Step-by-step explanation:

To calculate the accounts receivable turnover ratio, you divide the total credit sales by the average accounts receivable. The formula is as follows:

Accounts Receivable Turnover Ratio = Credit Sales / Average Accounts Receivable

Using the numbers provided:

• Credit Sales = $1,000,000

• Average Accounts Receivable = $80,000

Plugging these into the formula gives us:

Accounts Receivable Turnover Ratio = $1,000,000 / $80,000 = 12.5 .This ratio indicates how many times the company collects its average accounts receivable in a year. A higher ratio implies efficient credit and collection processes.