Question

Income statement: 20x2

a) Sales $2,500,000
b) Cost of goods sold $1,300,000
c) Net income $200,000
Balance sheets:
a) 20X2
b) Accounts receivable $300,000
c) Total assets $2,000,000
d) Total shareholders' equity $900,000
a) 20X1
b) Accounts receivable $200,000
c) Total assets $1,800,000
d) Total shareholders' equity $700,000
The accounts receivable turnover for 20X2 is:

Answer 1

To calculate the accounts receivable turnover for 20X2, divide the net credit sales of $2,500,000 by the average accounts receivable of $250,000. The accounts receivable turnover for 20X2 is therefore 10 times.

Step-by-step explanation:

Calculating the Accounts Receivable Turnover

The accounts receivable turnover ratio measures how effectively a company manages its accounts receivable. It is calculated by dividing net credit sales by the average accounts receivable during a specific period.

1. First, identify the net credit sales for 20X2. In this case, the sales are $2,500,000.
2. Second, calculate the average accounts receivable. This is done by adding the accounts receivable at the beginning of the year (20X1, which is $200,000) to the accounts receivable at the end of the year (20X2, which is $300,000) and dividing by 2, which gives us $250,000.
3. The final step is to divide net credit sales by the average accounts receivable, which results in an accounts receivable turnover ratio of 10.

Thus, the accounts receivable turnover for 20X2 is 10 times.

This ratio suggests how many times the receivables are collected, or turned over, during the year. A higher ratio indicates more effective credit and collection processes.