Question

Dahlia Corporation has a current accounts receivable balance of 329,800. Credit sales for the year just ended were 4,369,850. What is the accounts receivable turnover ratio?

1) 0.075
2) 0.0755
3) 0.07575
4) 0.076

Answer 1

The accounts receivable turnover ratio is a financial metric that measures how quickly a company collects funds from its credit customers. It is calculated by dividing the net credit sales by the average accounts receivable balance.

Step-by-step explanation:

The accounts receivable turnover ratio is a financial metric that measures how quickly a company collects funds from its credit customers. It is calculated by dividing the net credit sales by the average accounts receivable balance. In this case, the credit sales for the year were 4,369,850 and the accounts receivable balance is 329,800. To calculate the average accounts receivable, we need to add the beginning and ending balances of accounts receivable and divide by 2.

Beginning accounts receivable = ending accounts receivable - credit sales for the year = 329,800 - 4,369,850 = -4,040,050

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2 = (-4,040,050 + 329,800) / 2 = -1,855,625

Now, we can calculate the accounts receivable turnover ratio:

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable = 4,369,850 / -1,855,625 = -2.3556 (approx)

Therefore, the accounts receivable turnover ratio is approximately -2.3556.