Question

Using the following end-of-year information, calculate accounts receivable turnover for Year 2. (Round to one decimal place.,)
Year 2: Sales are $82,500; average accounts receivable is $11,000.
Year 1: Sales are $78,000; average accounts receivable is $10,000.
a. 7.8
b. 7.5
c. 46.8
d. 48.7

Answer 1

Answer:

b. 7.5

Explanation:

Accounts receivable refers to sales made without receiving payment (cash). It simply means the value of debtors. It is the total amount due to a business for goods sold or services rendered that has not been paid for by the buyer.

Accounts receivable turnover refers to the rate at which the business collects cash from its debtors. It tells us how quickly a company collects cash from its receivables.

Accounts receivable turnover = (credit sales)/(average account receivable)

Since the question does not provide credit sales, we use sales of $82,500; we have been given average accounts receivable of $11,000

Thus, accounts receivable turnover is

= 82500/11000

=7.5

This means that this company collects its account receivables 7.5 times a year.