Final answer:
The accounts receivable turnover for Raheem Company in year 2 is approximately 13.58 times, and for year 3, it is approximately 14.63 times. The ratio is calculated by dividing the net sales by the average accounts receivable for each year.
Step-by-step explanation:
To compute the accounts receivable turnover for Raheem Company for year 2 and year 3, we will use the accounts receivable turnover formula. This ratio helps assess how effectively a company is managing its receivables. The formula to calculate the accounts receivable turnover ratio is Net Sales divided by the Average Accounts Receivable for the period. The average accounts receivable is calculated by adding the beginning and the ending balance of accounts receivable for the period, then dividing by 2.
Year 2 Accounts Receivable Turnover
The net sales for year 2 are $370,000. To find the average accounts receivable for year 2, we add the accounts receivable at the start of year 2 ($25,600) to the accounts receivable at the end of year 2 ($28,900) and then divide by 2:
Average Accounts Receivable for year 2 = ($25,600 + $28,900) / 2 = $27,250
The accounts receivable turnover for year 2 is calculated as follows:
Accounts Receivable Turnover for year 2 = Net Sales / Average Accounts Receivable = $370,000 / $27,250 ≈ 13.58 times
Year 3 Accounts Receivable Turnover
For year 3, we calculate the average accounts receivable by adding the accounts receivable at the start of year 3 ($28,900) to the accounts receivable at the end of year 3 ($31,100) and divide by 2:
Average Accounts Receivable for year 3 = ($28,900 + $31,100) / 2 = $30,000
The accounts receivable turnover for year 3 is:
Accounts Receivable Turnover for year 3 = Net Sales / Average Accounts Receivable = $439,000 / $30,000 ≈ 14.63 times