Question

End zone outfitters had accounts receivable of $100,000 at 1/1/17. during 2017the only transactions affecting accounts receivable were sales of $1,200,000 and cash collections of $1,080,000. what would be the accounts receivable turnover?

Answer 1

Answer: The accounts receivable turnover ratio is 7.5 times.

Since the question states that "the only transactions affecting accounts receivable were sales of $1,200,000 and cash collections of $1,080,000." , we can infer that the company's credit sales were $1,200,000. We also know that the company collected $1,080,000.

Hence ending accounts receivables will be

$Ending A/R = Beginning A/R + Credit Sales - Cash collected$

$Ending A/R = 100,000 + 1,200,000 - 1,080,000 = 220,000$

Next we calculate the average accounts receivable (A/R) as:

$\mathbf{Average A/R = \frac{Beginning A/R + Ending A/R}{2}}$

Substituting the values we get,

$\mathbf{Average A/R = \frac{100,000 + 220,000}{2} = 160,000}$

Finally we calculate Accounts receivable turnover as:

$\mathbf{Receivables Turnover = \frac{Net Credit Sales}{Average A/R}}$

$\mathbf{Receivables Turnover = \frac{1200000}{160000} = 7.5}$