Question

The financial statements of the Imagine Company report net sales of $1,000,000 and accounts receivable of $700,000 and $300,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for the Imagine Company?A) 3 timesB) 2 timesC) 3.5 timesD) 2.5 times

Answer 1

Answer:

B) 2 times

Explanation:

Given: Net sales- $1000000.

          Account receivable at the beginning of year= $700000.

          Account receivable at the end of year= $300000.

Formula; Account receivable turnover= $\frac{Net\ credit\ sales (Net\ sales - Cash\ sales)}{Average\ net\ account\ receivable}$

First calculating average net account receivable.

Average account receivable= $\frac{Account\ receivable\ at\ the\ beginning + Account\ receivable\ at\ the\ end }{2}$

⇒ Average account receivable= $\frac{700000+300000}{2}$

⇒ Average account receivable= $\frac{1000000}{2}$

∴ Average account receivable= $\ 500000$.

Now, computing accounts receivable turnover.

Accounts receivable turnover= $\frac{1000000}{500000}$

∴ Accounts receivable turnover= 2 times

Hence, 2 times is the accounts receivable turnover for the Imagine Company.