Question

Magneto Company had net credit sales during the year of $1,350,000 and cost of goods sold of $810,000. The balance in accounts receivable at the beginning of the year was $180,000, and the end of the year it was $120,000. What was the accounts receivable turnover?

Answer 1

Account receivable turnover ratio = 9

Step-by-step explanation:

The account receivable turnover ratio shows how well a business is managing its credit line it extended to its customers.It provides information on how effective a business is in the collection of amounts due from customers in respect of credit sales made.

It is calculated using the formula below:

Account receivable turnover =

Net credit sales/ Average account receivable

Average account receivable=

(Receivable balance at the begin. + Receivable balance at the end)/2

We can calculate the account receivable turnover for Magneto Company as follows:

Step 1

calculate the average account receivable

= ($180,000+ $120,000)/2

= $150,000

Step 2

Calculate the account receivable turnover ratio ( ARTR)

ART = $1,350,000/$150,000

= 9

Account receivable turnover ratio = 9