Question

Compute the accounts receivable turnover and average collection period for 2022. (Round accounts receivable turnover to 2 decimal places, eg. 25.25 and average collection period to 1 decimal place, e.g. 25.2.) Accounts receivable turnover ratio times Average collection period days eTextbook and Media List of Accounts At December 31, 2021, Vaughn Co. reported the following information on its balance sheet. Accounts receivable $969,400 Less: Allowance for doubtful accounts 81,500 During 2022, the company had the following transactions related to receivables. 1 Sales on account $3,665,300 51,300 2 Sales returns and allowances 3. Collections of accounts receivable 2,804,200 4 Write-offs of accounts receivable deemed uncollectible 91,500 5. Recovery of accounts previously written off as uncollectible 28,000

Answer 1

The accounts receivable turnover for 2022 is 4.13, and the average collection period is 88.4 days. These metrics help assess how efficiently the company is managing its receivables.

Step-by-step explanation:

To compute the accounts receivable turnover for 2022, we need to know about the sales made on account and the average accounts receivable. The sales on account for 2022 are given as $3,665,300. Then, we calculate the average accounts receivable by taking the beginning and ending balances of accounts receivable and averaging them. Remember, the allowance for doubtful accounts is subtracted from the accounts receivable to get a net value. However, no ending balance is given, so we assume no change and use the starting balance for both beginning and end, which is $969,400 - $81,500 = $887,900 (net accounts receivable).

The formula for accounts receivable turnover ratio is Net Credit Sales divided by Average Accounts Receivable. So, we have $3,665,300 / $887,900 = 4.13, rounded to two decimal places.

Next, to calculate the average collection period, we divide the number of days in the year by the accounts receivable turnover ratio. This represents the average number of days it takes for the company to collect its receivables. Using a 365-day year, we'll have 365 / 4.13 = 88.38, which rounds to 88.4 days (1 decimal place).